H D 

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Book , L» "S"*! 



c'VT. ■:-•■-'■•■■ atrss? 



(o 



BEFORE THE UNITED STATES RAILROAD LABOR BOARD 

The Relation Between Wages and 
the Increased Cost of Living 



AN ANALYSIS OF THE EFFECT OF INCREASED 
WAGES AND PROFITS UPON COMMODITY PRICES 



PRESENTED BY 




W. JETT LAUCK 



ON BEHALF OF 



W. S. STONE, 

Grand Chief Engineer, Brotherhood of liOcomo- 

tive Engineers. 

L. E. SHEPPARD. 
President. Order of Railroad Conductors 

S. E. HEBERLING. 
President. Switchmen's Union of North America. 

LOTTIS WEYAND. 
Acting International President, International 
Brotherhood of Boilermakers. Iron Ship- 
builders and Helpers of America. 

J. J. HTNES, 

International President, Amalgamated Sbeet- 
Metal Workers' International Alliance. 

J. P. NOONAN, 
International President. International Brother- 
hood of Electrical Workers. 

TIMOTHY SHEA, 

Assistant President. Brotherhood of Locomotive 

Firemen and Enginemen. 

W. G. LEE, 
President, Brotherhood of Railroad Trainmen. 

WM. H. JOHNSTON. 
International President. International Associa- 
tion of Machinists. 



J. W. KLINE. 

General President, International Brotherhood 

of Blacksmiths. Drop Forgers and Helpers. 

MARTIN F. RYAN. 
General President, Brotherhood Railway Car- 
men of America. 

E. J. MANION. 
President, Order of Railroad Telegraphers. 

F. GRABLE, 

Grand President, United Brotherhood of M. of 
W. Employees and Railroad Shop Laborers. 

B. J. FITZGERALD, 
Grand President, Brotherhood of Railway and 
Steamship Clerks, Freight Handlers. Express 
and Station Employees. 

D. W. HELT. 

President. Brotherhood of Railroad Signalmen 

of America. 

TIMOTHY HEALY, 
President. International Brotherhood of Sta- 
tionary Firemen and Oilers. 

B. M. JEWELL. 

President. Railway Employees Department. 

American Federation of Labor. 



Washington 
1920 



:-/Hj 



[Lauck, William Jett] 1879- 

. . . The relation between wages and the increased cost 
of living. An analysis of the effect of increased wages and 
profits upon commodity prices. [Presented by W. Jett Lauck, 
in behalf of the brotherhood of railway employees.] Wash- 
ington, 1920. 

93 p. incl. tables. 22j^cm. 

At head of title: Before the United States Railroad labor board. 

1. WAGES— f7 >S. 2. PRICES— 77. S. 3. COST AND STANDARD 
OF LIVING— L^ S. I. U. S. Railroad Labor Board. II. Title. 



£V-«3>»3a!B»a« 



ijo^j^. 



BEFORE THE UNITED STATES RAILROAD LABOR BOARD 



The Relation Between Wages and 
the Increased Cost of Living 



An Analysis of the Effect of Increased 
Wages and Profits Upon Commodity Prices 




WASHINGTON 
1920 

•2 






o; of a. 

AU6 24 1920 



TABLE OF CONTENTS 



i'ART J , General Survey 5 

Part II. Profiteering and Labor Costs by Industry' Groups 25 

1. Sugar 27 

2. Meat Packing 31 

S. Canned Goods and other Food Products 36 

4. Boots and Shoes 45 

5. Textile 54 

6. Clothing and Dry Goods - 58 

7. Bituminous Coal 60 

8. Anthracite Coal 66 

9. Petroleum 72 

10. Iron and Steel 75 

11. Copper 81 

12. Metal Products 85 

13. Railroad Equipment 88 

14. Building Material 90 

15. Miscellaneous 92 



RELATION BETWEEN WAGES AND THE 
INCREASED COST OF LIVING 



PART I. 



GENERAL SURVEY OF PROFITEERING 
AND LABOR COSTS 

A careful analysis of the data bearing on the causes of high prices 
and the relation of cost of production to prices leads to the follow- 
ing specific conclusions: 

1. Profiteering — by which is meant the exaction of profits greatly 
in excess of pre-war profits on the part of producers, middlemen and 
retailers — is a fundamental cause of the high prices of practically 
all commodities. 

2. Increased wages to labor are in no way responsible for in- 
creased prices. 

To cite increased wages as a cause of increased prices is to betray 
an ignorance of the facts. Wage advances have been an effect of 
price advances, not a cause. An examination of the experience of 
every industry shows, practically without exception, that wage 
increases have lagged behind price increases and usually very far 
behind. In a period of rapidly rising cost of living it is inevitable 
that wages also rise in some measure, if the great body of wage 
earners, living as they do at best not far above the line of poverty, 
is not to suffer complete degradation. 

But in no way has labor been the Initial influence. Prices were 
pushed up by factors over which the workers had no control. They 
have merely struggled as best they could and in the only way they 
could to keep their old standards of living. In this struggle they 
have met with only very partial success. For the great body of wage 
earners, wages have not kept step with prices. 

As a result, labor as a class is now worse off than it was before 
the war. Almost without exception a day's w'age buys less than it 
did in 1912 to 1914. In other words, in the distribution of the 
income of the country labor is receiving a smaller proportion than 
it did before the war, while capital — in the form of profits, interests 
and rent — is receiving a very much larger proportion. 

It is not contended that profiteering is the sole cause for the 



G 

maintenance of prices at their present level. It is contended, how 
ever, and data are submitted in proof bel©w, that profiteering has 
been responsible for a very large proportion of the price increases — 
probably one-half. Moreover, the other possible factors are more or 
less intangible and perhaps not susceptible to immediate remedy. 
But profiteering is a perfectly tangible thing, and one which can be 
remedied by intelligent statesmanship. And it is only by striking 
at this root cause of our present troubles that permanent remedy 
may be obtained. 

It is not possible to compute the full extent of the profiteering 
that has taken place and is now taking place. The complete infer 
mation is not available and probably never will be. Too many hands 
have dipped into the golden stream of war-time profits. Too many 
ways have been discovered by corporations and business men for 
concealing the full measure of their earnings. But, in spite of these 
difficulties, sufficient evidence does exist to establish a conclusive 
case of "profiteering'^ — of profiteering on a scale that makes one 
almost despair of the future of the country. 

The evidence referred to is of an entirely authoritative character. 
It includes the financial statements of corporations, the Federal 
income tax returns, the investigations of Governmental bodies such 
as the Federal Trade Commission, the Tariff Commission and the 
Bureau of Foreign and Domestic Commerce, and various reports, 
studies and statements by other official agencies and men in close 
touch with public and business affairs. 

Profiteering as Shown by Corporation Keports. 

Perhaps the most conclusive evidence of profiteering is contained 
in the financial reports of the corporations themselves. In order 
to develop this point a careful analysis has been made, for the years 
1912 to 1918, inclusive, of the financial reports of all corporations, 
of 11,000,000 annual income, in certain lines of business in which 
the ordinary consumer is particularly interested. The sources used 
were the well-known financial manuals such as Moody's and Poor's. 

The following table summarizes the results of this study. It 
shows, for a large number of corporations by industry groups, the 
average annual net income, and the per cent, of net income to 
capital stock, for the three pre-war years 1912-1914 in contrast with 
similar data for the three war years 1916-1918 : 



Increase in Net Income and rerceniage Earned on Capiial StocJc of Corpora- 
tions in Specified Industries During the Periods 1912-1014 and 191G-1918.* 



No. of 
com- 
panies 



Basic Metal Industries- 



< Copper mining 14 

Misc. mineral mining... 6 

Iron and steel works 19 

R. R. equipment mannf. 7 
Metal products manuf... 11 



Capital 
stock 1918 



$253,290,655 

182,764,263 

1,384,433,855 

220,809,152 

167,716,560 



Average annual net 

income for periodj 

1912-1914 1916-1918 



Per cent net 

income is of 

capital stock 

for period! 

1912-1914 1916-1918 



$46,557,451 
17,571,427 
74,649,117 
15,745,728 
18.205,471 



$1.37.046.514 

27,998,792 

334.888,406 

38,676,951 

51,527.942 



19.7 
7.7 
6.1 
7.3 

11.8 



54.0 
13.6 
26.9 
17.7 
.31.1 



Total 57 $2,209,014,485 $172,729,194 $590,138,605 8.4 28.2 



Clothing- 
Textile Manufacturing... 8 
Clothing and dry goods. 11 

Total 19 

Food— 

Packing-houses 5 

Sugar producing and ref. 12 

Food products, misc 12 

Total 29 

Fuel, Light and Housing- 
Coal and coke product'n 32 

Petroleum products 22 

Building material manu. 10 

Total 64 

Miscellaneous— 

Mercantile establishm'ts 7 

Agricultural supplies.... 7 

Misc. industries 22 

Total 36 

i Grand total 205 



$100,251,744 
242,352,056 



$179,691,396 
316,005,600 
757,183,933 



$3,734,215 
15,299,288 



$21,551,064 
33,621,247 



$342,603,800 $19,033,503 



$648,467,581 $49,989,328 



$919,241,657 $100,242,419 



$22,790,700 
22,901,434 
50,976,849 



$37,632,491 

37,895,558 

134,139,992 



$1,252,880,929 $96,668,983 $209,668,041 

$5,372,208,452 $438,663,427 $1,234,359,688 



3.9 
6.2 



13.9 
7.4 
7.1 

8.1 

8.7 



22.6 
13.8 



$55,172,311 5.8 15.8 



$172,477,050 


$20,146,784 


$58,644,468 


14.4 


36.9 


179,257,338 


11,306,923 


34,174,794 


6.5 


19.1 


296,733,193 


18,535.621 


39,857,473 


6.9 


13.6 



$132,676,735 8.6 21.3 



$262,672,277 


$16,098,691 


$40,195,220 


7.6 


15.2 


478,758,480 


73,989,006 


178,779,091 


18.7 


39.8 


177,810,900 


10,154,722 


27,729,685 


5.7 


15.6 



$246,703,996 12.3 27.6 



21.3 
12.1 
17.9 

16.9 

23.9 



The outstanding fact in this table is simply stated. The cor- 
porations listed — including all with incomes of |1,000,000 or over 
in any one year in so far as they are listed in the financial man- 
uals — earned during the years 1916-1918 an average income of 
nearly $1,250,000,000 a year, or nearly 24 per cent, on their capital 
stock. This appears to be nearly three times the average for the 
pre-war years 1912-1914, and the figures for production, where 
these are available, show conclusively tJmt these increased profits 
were not due to increased production. They were due in large meas- 



*Ineome of companies for which average for pre-war period was unobtainable elim- 
inated in order to render totals comparable. 

tin computing these percentages, entries of net income and capital stock were omitted 
when both of these items were not given. This occurred in only a few cases. When 
issues of stock since 1912 are known to have been in the form of "stock dividends," such 
issues have been ignored on the basis that nothing was added to the property investment 
thereby. 

tin cases where income is reported for only one or two of the three years, either 
the amount for the one year or the average of the amounts for the two years has l)een 
treated as an average for the period. 



8 

ure to the fact that the corporations took a larger proportion of 
every dollar spent by a purchaser. This fact will be shown con- 
clusively in another part of this study. Here it is sufficient to note 
that for the three years 1916-1918 the annual profits of these cor- 
porations averaged approximately |800,000,000 more per year than 
during the three-year period preceding the war, 1912-1914. 

This is a startling fact. Basing our calculations upon the reported 
net corporation income as shown in the income tax returns these 
carporations represent about one-sixth of the total corporate income 
of the United States. If these other corporations did as well as 
those of which record is available, and there is reason to believe they 
did, then the combined corporations of the country earned approxi- 
mately 14,800,000,000 more per year during the three war-years 
1916-1918 than during the three pre-war years 1912-1914. 

A total of 1800,000,000 means |40 per family of five throughout 
the nation. A total of |4,800,000,000 means |240 per family of five 
throughout the nation. Consider that each family of five paid as 
a toll, not to so-called legitimate profits, but to excess of war profits 
over pre-war profits, |240 per year, and one gains an idea of the 
total burden which profiteering meant to the country. Yet it is a 
conservative estimate of what actually happened, and it must be 
remembered that this huge figure does not represent the whole profit, 
but only the part in excess of the pre-war level. 

Even such stupendous figures do not tell the whole story. For 
the most superficial investigations reveal the fact that during late 
years the companies have been resorting to numerous devices for 
concealing profits. Excessive deductions for depletion and deprecia- 
tion reveal themselves very quickly when we turn to such basic in- 
dustries as copper and coal. In other industries huge sums are found 
set aside for Federal Tax Reserves, sums out of all proportion to 
the necessities of the case. Payment of excessive salaries to offi- 
cials is another favorite method. The Federal Trade Commission 
found that the American Metal Company was paying salaries rang- 
ing as high as |364,000. 

In other words, there are very good grounds for concluding that 
the figures given above very much understate the real profits taken 
by corporations during the war years. An average of |1,200 per 
family of five during the years 1916-1918 is probably a highly con- 
servative estimate of the actual cost of corporate profiteering to the 
consumer. 

During the three years 1916-1918 the consumer has been paying 
the food corporations whose reports are available over two and one- 



half times as large profits as were considered acceptable before the 



war. 



In the clothing group the increase in profits was proportionally 
even greater the price of clothing carrying a charge or profi 
nearly three times the pre-war fignre. 

Turning to the corporations which produce various kinds of fuel 
together with certain building products, we find the profits for th-^ 
war years 1916-1918 nearly two and one-half times those for th^ 
pre-war years 1912-1914. For the three years 1916-1918 the av raS 

of pioflts for the four years 1916-1919 undoubtedly totaled more 
han a bUhon dollars. This means that during the years mentiZd 

these corporations earned, after every possibi: deduction had b en 

made, enough to replace their entire capital stock 
The profits of the basic metal industries, however, outdistance 

those of any other group. These industries are the on s whi h pro 
duce commod.tie^such as iron, steel and copper-which the con- 
sumer never buys directly, goods which are bought bv other inter 
media e producers. But the cost of these basic produces enters "nto 
the pnce paid by the consumer for almost everything that he buys 
The war, with its demand for munitions, greatly increased the oppo" 
tunity to profiteer in these lines. As a result the industries who^e 
services the nation needed most, more than trebled tt'pofitT 
The profits taken during the war years 1916-1918 were in fac ' 

i»i4 f5J0,138,605 as opposed to 1172,729,19.5. In other words th,. 
excess war profits amounted to over $400,000,000. which Iventuan 
reached the consumer in the prices which he paid for the varTous 
commodities into which these basic metals en ered. And it must 
be constantly remembered that these profits are net profi s after a 
income and excess-profits taxes have been deducted 

For a corporation here and there to find itself in a strate<ric nosi 
ion which enabled it to make huge profits, there was precedei.tr 
fore the war. But for practically the entire business orirn,>ation 
of the country the sum total of the corporations, to be i^ uc 
«trateg,e position that it could hold up the public for enorml' 
profits upon everything, no precedent can be found. After alT ex 
penses of operation and maintenance had been paid-after al) 
charges for replacement of capital had been set aside-in fac after 
eveiy conceivable or imaginary expense had been met-these 111 
groups of corporations, controlling the various products essentS^I 
our life, mad. profits which were sufficient to' replace he li: 



10 



value of the capital stock within a period of slightly over four years. 
This is proved by their owu published reports. 

The Income Tax Returns Confirm the Fact op PKOFrrEERiNG. 

Statistics compiled by the Commissiouer of Internal Revenue from 
income tax returns .how that the corporate profits of the companies 
asted in the financial manuals are representative of tl^e whole end- 
ency throughout the country's business. For the yf^'^'^^l^^^'^^ '^^ 
average of net corporate income was approximately |4,268,000,000. 
For the years 1916-1917 it had increased to approximately nine and 
three-quarter billions of dollars. In other words, the net income for 
the war years was more than double that for the preceding years, 
despite an excessive deduction of |74,000,000,000 from gross income 
before net income was reached in 1917. Detailed data on his^point 
will be found in a separate study. The significant t^^^ > ^J?' >^ 
1917 reported corporate income was over ten and one-half bill.on 

As in the preceding analysis of the financial reports of corpora- 
tions so here it is found that the most extraordinary increase in 
profite during the war appeared in the industrial and mining group, 
where the corporate income returned for 1917 was approximate y 
four times the pre-war averag<^|6,o00,000,000 as contrasted with 

$1669,012,000. . t 

if from the figure given for the tstal net corporate income for 
1917, we deduct the approximate value of the excess profits taxes, 
and further deduct 10 per cent on all additional capital invested to 
expand industrv to meet war demands, the profits of corporations 
are still found to be over three and one-half billion dollars above the 

pre-war average. ^«^ 

Such enormous profits made at the expense of the consumer weie 
too large to be divided all at once, especially when a large propor- 
tion of high incomes went to help the country carry the enormous 
expense of war. So only a part of the profits was disbursed. The 
remainder swelled reserves to huge proportions. Thus the consumer 
discovers that he has been taxed not only to pay high div;idends dur- 
ing the war period, but also in order that these same high dividends 
may be continued over the recession of industry which is bound to 
follow Some of these reserves will find their way into stock divi- 
dends, thus creating more paper value upon which the country will 
lie expected to pay a fair rate of profit. 



11 

United States Treasury Report on Corporate Income. 

The extraordinary nature of the profits of industry during the war 
years is manifest in so incomplete a document as that submitted to 
the Senate by the Treasury Department in 1919, entitled "Corporate 
Pvarnings and Government Revenue." This document purported to 
show the incomes of approximately 20,000 of the 31,500 corpora- 
tions in the United States reporting incomes over 15 per cent on 
their capital stock. 

Altogether these corporations earned an average return on capital 
stock of 3314 per cent after all taxes had been deducted. In other 
words, with three years of such good fortune as war brought, these 
corporations would make profits totaling the whole value of their 
capital stock. 

The following table shows the great increase in profits enjoyed 
by the leading industrial groups. 



CORPORATE EARNINGS IN 1917, BY MAIN GROUPS OF INDUSTRY. 

(From ''Corporate Earnings and Government Revenues^'Senate Document 

259.) 

^Per cent of net income for the vear 1917-^ 
To capital stock To invested capital 
Before After Before After 
deducting deducting deducting deducting 
Industry Taxes Taxes Taxes Taxes 

Fisheries 90.95 5.5.07 .50.15 30.39 

Banking and brokerage institutions 35.09 28.10 10.98 8.77 

Business. pursuits and personal services. . . 36.50 29.01 22.28 17.68 

Chemical and allied industries 52.36 41.76 .34.89 22.08 

Food and food preparations 41.89 33.48 31.57 23!l9 

Iron and steel industries .50.52 36.43 33.59 23126 

Leather and leather goods industries 33.32 26.41 2.3.41 18!35 

Metal and metallurgical industries 28.79 22.89 22.03 16.93 

Mining and mineral extraction 49.27 36.02 32.74 22.75 

Paper printing, bookbinding and publishing 35.82 27.41 22.71 16.90 

Special manufacturing industries 38.90 30.43 24.70 18.57 

Stone, clay and glass industries 36.89 28.22 26.86 21 !oO 

Textile industries 47.23 34.26 28.24 20.76 

Timbering, logging. lumbering and wood- 
working industries 40.98 .33.88 15.73 12.97 

Trading 44..30 33.99 25.07 19.20 

Transportation and public utilities 26.63 20.98 16.38 12.88 

Total 44.34 33.51 2.5.95 19.11 

There is no business group listed here with an average net income 
under 20 per cent. Over one-fourth of these corporations, 5724 in 
number, shoiccd net props of over 50 per cent on capital stock. 
And over one-tenth of them (2030) showed net profits of over 100 
per cent. In other words, there were over 5000 corporations which, 



12 



in 1917, earned over one-half the value of their capital stock and 
over 2000 that earned the entire value in a single year. 

Thus the statement that tremendous profits and high prices are 
closelv associated is substantiated by data from two authoritative 
sources which certainly lean toward conservatism. The effect ot 
these profits on prices can best be shown by an analysis of the data 
for each general group of purchases made by the consumer. Full 
discussion of each of the important industries from this point of 
view will be found in a later section. 

Profiteering in Food. 

Profiteering in industries connected with the production of food 
is perhaps most quickly felt by the consumer. 

In the case of sugar, the facts show beyond a shadow of doubt 
that the extraordinary increase in price, now amounting to 300 per 
cent can find no justification in terms of the wages paid to labor 
to produce it. The increase in labor cost was less than 15 per cent 
of the increase paid by the consumer. The high price of sugar was 
the direct result of speculation which followed the shortage due to 
the increased demand of Europe. The result of these uncalled-for 
prices appears in the reports of twelve companies producing over 
50 per cent of the total sugar consumed in the United ^^^tes. The 
net profits of these concerns rose from an average of $11,000,000 
during the years 1912-1914 to $34,000,000 for the years 1916-1918- 
that is from 6i/> to 19 per cent on capital stock. In other words, 
war profits were practically three times those of the pre-war period. 
Nor was this increase in profits due to increased production, for 
enough figures are at hand to show that the profit per pound of 
sugar was practically three times as large in the years 1916-1918 
as it was in the pre-war years. 

In the meat-packing industry, the domination of the five big pack- 
ers has tended to accentuate this profiteering. Their control extends 
far bevond the meat-packing industry into nearly all departments of 
food production. Eggs, milk, cheese, vegetable oil, and even canning 
come within the scope of their system. In fact, the real extent of 
their influence is unknown. 

The labor item in the production of meat is so small a factor as 
to be almost negligible. A wage increase of 100 per cent would add 
less than 5 per cent to the total cost of meat. Yet the price exacted 
of the consumer has increased from 50 to 100 per cent. The increase 
in price between 1914 and 1918 was eight times the total labor cost, 



& 



and the 1918 price represented 25 times the total labor item Tlie 
increase in retail price was 14 times as great as the entire labor cost. 
Even a 1000 per cent wage increase would not account for the in- 
crease in price. 

On the other hand, profits have actually increased between 300 
and 400 per cent. Four of the big packing houses earned durin.^ 
he years 1910-1917, $140,000,000. Such profits were made despit^ 
the deduction of enormous amounts for excessive salaries, advertis- 
ing and overhead charges. Altogether in the period 1912-1918 these 

Zwr^V" "' ''"T' "' " """*"• *'°"'''^ ■" P-fit«- - nearly 
double the pre-war value of their stock. Three-fourths of the new 

stock issued to conceal these huge profits was stock dividend repre- 
hif^^"*' T^ investment. In this profiteering enterprise the five 
big packers have been assisted by their control of affiliated and sub- 
sidiary companies, such as stock yards and rendering plants These 
companies were acquired with practically no real expenditure 

2::t::t ;; '"''' f • ^^'^^^ '^^^ ^^^^^ '^^^^ p-«*«' -p--" ' 

c^of lirng " "'' accumulating profits that cause the high 

Beyond the closely defined realm of sugar and meat packing plentv 

throulTuTthe r°.' '": '''' '''''' ''''' ^^'^''^^'^i was^genera 
nZfrv L T '"'■ '^'^'••"^^•"'"t the vegetable-canning 

Indus ry, for instance, prices have advanced far more rapidlv than 
have labor costs. The chief responsibility for high prices must be 
placed upon the greater margins taken by manufacturers and se in^ 
gents, although the metal trades must share the responsibilS o^ 
the price of cans played a very considerable part. Labor's share 
throughout the canning industry increased proportionable s than 
any other item in the price, while the profit margins show the larist 
proportional increases. Everywhere in the industrv we find iX 
receiving a smaller proportion of the costs and selling prices in 917 
than m the previous year. Further investigation shows tha? n^ 
.rear's time, 1916-1917, profits in vegetable canning more than t ild 
In the canned-salmon industry the s-ituation is practicam^ the 
same. Increases in prices and profits were verv murt -neater nro 
portiona ly than increases in labor costs. Here again data Tre Tt 
hand on y or the years 1916-1917, but within this brief period tl 
profits of the group of packers studied by the Federal Trad Co ^ 
mission rose from 22 per cent to 52 per cent on investment. Elev n 
of the 78 companies made over 100 per cent profit in a single venr 

se H„:.Tcr°'^' "■" ""'^ "' ''' "^^^ ^"'^ -- one-thirfo le 



14 

Financial reports serve only to confirm these facts of large profits. 
Taking a group of corporations producing a great variety of prod 
ucts — cereal, canned food, fruits, groceries, etc. — we find that the 
profits for 1916-1918 were double those for pre-war years. The suc- 
ceeding pages show the specific instances. Here it is sufficient to 
note that throughout the food industry profits have doubled, and 
prices have gone up far beyond that which is necessary to cover 
increased labor cost. The people of the country have been forced to 
pay a heavy and unnecessary toll. 

Profiteering in Clothing. 

In this branch of industry data are scant, but enough is available 
to show that profits absorb approximately one-half the retail price 
of certain kinds of cloth, while the labor item is insignificant, 
amounting to from one-fourteenth to one-twentieth of the price. 
The extent to which this indicates profiteering is apparent when we 
face the fact that recent profits have been nearly five times those 
exacted in pre-war years, representing an increase in profits in the 
case of eight representative textile concerns from a yearly average 
of 13,734,215 to |22,630,562. 

Passing on to made-up garments and dry goods as they are retailed 
to the consumer, a similar increase in profits is found, although in 
the case of the manufacture of men^s garments, etc., the great in- 
crease in profits did not begin to show itself until after the war, as 
will be pointed out in a subsequent section. The militarization of 
a large portion of the male population interfered with the specula- 
tive value of this particular market. 

Shoes, however, furnished a splendid opportunity for the profiteer 
At each stage, from packer to tanner, from tanner to manufacturer, 
from manufacturer to wholesaler or retailer, an increased profit was 
exacted until in 1918 the shoe bought by the consumer was actually 
worth little more than two-fifths of the price which he was forced 
to pay. In the tanning industry the tanner's profit shows in all 
cases a greater proportional increase than any other item shown by 
the Federal Trade Commission's analysis of costs. The percentage 
of labor cost to total cost of tanned leather was already small, and 
it actually declined, while the price advanced. On the other hand, 
the tanners' profits steadily increased until the average profits for 
the industry in 1917 were double those in 1914, amounting to over 2.5 
per cent on invested capital. During the war years the shoe manufac- 
turers also earned approximately 25 per cent on their invested capi- 



m 



tal. This is shown bv a ^tnrlv r^f oqt d 

the Federal Trade C^nliSn.''^ t ZmZlTr^ ""''' '' 
<iuite .0 great, because the shoe n,ant factuC ."de v""' '' "'' 
profits prior to the war "cturers made very generous 

puS tlf.S'^e^rttr-^^'"''^"'- "^ ^•^'^ ---.V 

.how au increase in net profi s rrSoTor;^ '"'''"'' 

1914 to 110,000,000 for the rears 1916 ms!" ^''''■' '^'-- 

per cent. ' 1J1(>1918, an increase of over 100 

The astounding thin"- about +v,<> ci.„ • j 
Of the price which gc^'s into the vf "'*'"**''^' '^ '""^ proportion 

this is contrasted wltTlablr's sLreTy"''"^' "P^"""^^' ^''^" 
labor from the hide to t C fi , . . ^ P"^^' ^^ ^^l* all the 
«ixth of the price paid bv'"^'"''*^' ^'^"^ «''«°^bed less than one- 

Of labor had L::are^x:~x^^'":, ^" ^^^^ ^■^^^ ^''-- 

items in 1914 absorbed nearh one haS the ' "' '?'°'' '''' P™«* 
sumer, or nearly three time. iL tnt , , ^"'^ P^'"^ ^^ ^•'^ con- 
profit items anrouJ:/r„^^:J;^'''':r''' ""'"" '" '''' "- 

priee «.. .„ „,,,. ,,, ...eX To^ l.'t:;:^;;:^ *''!. *"«' 

to who ,s responsible for the increased cost nf «> ^"''*'°" "" 

answered when we realize that of the sV^^ '"" ''" l"'*^"^-'" 

pair of standard shoes labor recl'd 1 " ""T'' '" "'*" P"*^'^ °^ « 
of the various manufacturer ard ,n ' h" ? t' '^"'"' ^""^ "'^'^^'^^ 
obviously, if the various profits had b" ''""■"''' *--^^- ^^->- 
n-argin. the price of shoes nLd not 1- T '"'"'^"'^ ""'^^ ^^^ o'*! 

Thus in the matter orcSint XliTS ^ "''^"^'•^• 
h,gh cost of living almost as '^vtLZ 1 ' ^^^ P'"*^'' of the 

food, it is np„arent that the, '"^r "' '" '" ^'"^ '""^^^ "^ 
the profits Of ihe manufacturers ;;Vr:t;i;;ra:?r5:i^^^^^^^^ 

Profiteering in Fuel. 

Increases in the rptai] r»r.i/.^ ^* i..^ 

tin.es as great as tr^tLlTint^TZr^T '^'^ "^^^ ^''- 
proceeds of the industry received bv thr , Proportion of the 

from 7.5 to 400 per cent. The ex^^t to h ?T*'"" "^^ ^""^^^^^ 
i^^nlted in huge profits is shown iTthei **' ''^'^ "' ^^^'^s 

Treasury Department computid Jor tl T""! ''^ ^^'^ ^''*<^1' *"« 

evenj possible deduction of over 25 per celt .t^, '"''^'' ''^''^ 

shoiced earnings of over .50 ner rfni^ ■ ' "'* '"'^'' one-7ialf. 



16 

Turning to the financial manuals we find the net annual profit 
of 17 bituminous companies for 1917 nearly four times the pre-war 
figure. This proportion appears not only in the absolute figures 
where the increase is from approximately |13,000,000 in 1914 to 
nearly |48,000,000 in 1917, but also in the percentage earned on 
capital stock, which increased from 7% to over 27 per cent, as well 
as in the net profit per ton, which rose from 20 cents to QQ cents. 
As a matter of fact the operator's margin showed a larger propor- 
tional increase than any other item in the price of coal paid by the 
consumer. If the average profit per ton shown b}^ these companies 
was representative of the industry, it indicates that the operators 
during the four years 1916-1919 gathered a clear profit totaling over 
one billion dollars. This means a tax on every man, woman and 
child in the United States of |10 to pay the four-year profits of the 
bituminous coal operators. Had the operators been satisfied with 
normal profits the nation might have been saved hundreds of mil- 
lions of dollars in its coal bill. 

Since the consolidation of the anthracite market prices of anthra- 
cite coal have always been high and profits have always been large. 
The real magnitude of these profits has not been generally apparent, 
not only because of heavy over-capitalization, but also because of 
the clever device by which the majority of the companies have sepa- 
rately incorporated their selling departments. The producing com- 
pany, then, shows but an ordinary return. The real profits are 
made by the selling corporation, very little of whose capital stock 
represents real investment. In 1918 the real profit margin taken 
by the producing corporations in their two aspects averaged approxi- 
mately three-eighths of the entire cost of producing the coal. When 
we add in the margin of the retailer the total margins appear to be 
larger than the entire cost of producing the coal. The consumer 
in New York who paid |11.82 for a ton of anthracite coal in 1918 
was paying |4.22 for the production and loading of the coal, |2.30 
for transportation, and |4.80 in margins. A certain percentage of 
the retail margin must be reckoned as cost of delivery, so that the 
most inexcusable profiteering rests with the great anthracite cor- 
Dorations, which practically control the market. Here again we 
find the increase in price out of all proportion to the increase in 
labor costs. 

The financial reports of the leading anthracite companies show 
conclusively that large profits prior to the war in no way prevented 
them from practically doubling those profits during the war j^ears. 
Four of these companies show an average annual income for pre- 
war years of nearly |7,000,000, being a return of approximately 15 



17 

per cent on the total capital stock. By 1917 this had risen to over 
116,000,000, or over 31 per cent on the total capital stock. The 
income tax returns of six smaller anthracite companies, published 
by the Treasury Department, show that their net income increased 
from 57 per cent on capital stock in 1916 to 941/0 per cent in 1917. 

Thus it is evident that during recent years a large element in the 
high cost of living has been the result of the burdensome profits of 
the coal operator. And it must be recognized that the influence of 
high prices of coal reaches everywhere, for the cost of coal consumed 
in power plants and factories, in gas plants and on railways, enters 
into the price of every article bought by the average household. 

Profiteering in the production of another fuel, petroleum products, 
is coming to bear as heavily upon the consumer as profiteering in 
coal. Profits of approximately 1800,000,000 were earned between 
1912 and 1918 by the oil corporations listed in the financial manuals, 
and this list is by no means complete. The war enabled these cor- 
porations to take profits more than double those enjoyed during the 
four preceding years. The stupendous profits of the war years 
meant that within less than three years the entire value of the 
capital stock had been earned. Certain companies earned on real 
investment as high as 1000 per cent. In 1916 one corporation took 
profits equal to the entire value of its capital stock, which had been 
increased to 30 times the original investment by stock dividends. 
Altogether the material summarized in later sections shows that the 
price of fuel oil in its various forms carried a very large load of 
profit before the war, and that this profit item was immensely 
increased during the war. 

Broadly speaking, then, one important item in the increased cost 
of living has been traced to the exorbitant profits of the companies 
which control the sources of the country's fuel supph^ If we could 
get behind the published figures to determine how much additional 
is being paid to the owTiers of land in the form of royalties, we 
would be in a position to estimate the real extent of profiteering in 
this industry. 

Profiteering in Metals. 

Our entire civilization seems almost to be organized about iron, 
steel and copper. The war accentuated the strategic character of 
their position. The price of the raw metals and of their products 
has increased beyond anything which can be justified by the in- 
creased cost of production. This has resulted in enormous profits. 
While the labor costs have tended to decrease, due to improved 



18 

methods, prices have steadily increased. Increases in the price of 
steel products during the war years were from eight to nine times 
the increases in labor costs. The net profits of the U, 8. Steel Cor- 
poratlon per ton of finished product were 220 per cent greater in 

1917 and 111 per cent greater in 1918 than they had averaged for 
the three years prior to the tear. 

Throughout the steel industry the same condition prevailed. 
Profits which averaged |74,650,000 for the three pre-war years were 
more than four times as large in 1916-1918, approximately |337,- 
000,000. This means that over one billion dollars in profits were 
turned over to the steel corporations in the course of three short 
years. A billion dollars of excess profit means a tax of |10 upon 
every man, woman and child throughout the nation. In 1916 the 
Bethlehem Steel Company took profits nearly half again as large as 
its capital stock. Such facts are merely an index of the enormous 
profiteering which has characterized the steel industry, and which 
has entered into the high cost of living resulting from a constant 
pyramiding of profits. 

In the case of copper, one and three-quarters billion pounds of 
which are consumed annually in the country, the situation is almost 
more striking. For, an analysis of the price of copper shows that in 

1918 over 54 per cent of the total price tvas ahsorljed either by 
royalties or hy profits. In other words, capital received more than 
two and one-half times as much per pound as labor received. The 
amount received by capital is larger than the entire cost of pro- 
ducing the copper, including production, transportation, marketing 
and charges for depletion and depreciation. 

The royalties on copper paid to owners of land in 1918 may be 
estimated as nearly one hundred million dollars. During the same 
year the return to invested capital amounted to 28 per cent for the 
entire industry. Such enormous returns, traced directly to their 
place in the price of copper, show clearly who is to blame for the 
increased prices. The net incomes of 14 copper companies, which 
publish their reports in the financial manuals, were approximately 
three times as large in the years 1916-1918 as in the years 1912-1914. 
The average net income of the group rose from |46,557,451 in 1912- 
1914 to over |137,000,000 for the j^ears 1916-1918. This latter profit 
means a return of 54 per cent on capital stock. During four years 
these corporations earned nearly half a Mllion dollars on capital 
stocky totaling only a quarter of a Mllion. This means profiteering 
which staggers the imagination. Moreover, it must be recognized 
that much of the reported capitalization is fictitious. 

This profiteering was carried on into secondary metal trades, into 



19 

the manufacture of machines, hardware, brass, ships, engines and 
railroad equipment. In all these various branches of national indus- 
try the profits more than doubled as a result of the war. And the 
exorbitant profits of these concerns, when added to the profits of 
the basic industries just mentioned, tend to increase the price of 
transportation, of building, of light and power and manufacture. 
Their importance cannot be neglected. The companies manufactur- 
ing electrical equipment have followed the same lines. So have the 
manufacturers of farm implements. 

But we have perhaps covered a large enough area of the country's 
industry to indicate, by way of introduction, the cumulative load 
of profits which the nation is carrying. The high cost of living is 
often treated as something which is inevitable. But it is not inevi- 
table. Were profits to be brought down even to pre-war proportions, 
prices could be reduced very materially without in the least reduc- 
ing wages. 

It is in such facts as are briefly reviewed above that we get a real 
insight into the nature of the problem which faces the people today. 
It is the problem of making a fight to prevent these war profits 
from establishing a precedent, from capitalizing themselves into a 
perpetual burden w^hich will mean that from now on the worker 
will have to be satisfied with a smaller proportion than ever before 
of the actual value of his product in order that capital may be per- 
petually rewarded for its war services. 

Profiteering Did Kot Stop With the Armistice. 

A survey of such financial statements as are now available (April, 
1920) shows that excess profit-taking did not stop with the armistice. 
This survey, which covers 178 corporations, brings out some very 
interesting facts which bear definitely upon the problem of the high 
cost of living. 

The corporations for which informatior is available divide them- 
selves immediately into two groups. In one group are fifty-one cor- 
porations whose profits for 1919 are considerably below those for 
1918, 1259,470,504, as against |428,335,174. These are the corpora- 
tions controlling the production of coal, iron, steel, copper, metal 
products, and the packing industry, corporations which had a prac- 
tical monopoly of the requirements of a government at war. In 
other words, faced with a situation in which the dire need of 
nations for these products far exceeded the supply, the corporations 
in these lines reaped huge profits. And it should be noted here that 
these apparent decreases in profits between 1918 and 1919 cannot 



20 

be taken at their face value. During the war period these companies 
had expanded greatly. When they faced what appeared to be an 
era of falling prices, they deducted from their total earnings enor- 
mous sums for "amortization of war plants," depletion, depreciation, 
etc. This served them a two-fold purpose. It not only enabled them 
to avoid excess profits taxes, but also furnished them with a bulwark 
against possible lean times. 

With the cessation of the demand for war supplies, the accumu- 
lated needs of the civil population for clothing, household supplies, 
etc., gave the industries engaged in these lines their opportunity to 
exploit the public. The records of the corporations producing those 
commodities, as shown in the published reports of 127 corporations, 
prove that they have been profiteering more since the armistice than 
they did during the war years 1916-1918. The profits of this group 
for 1919 were |740,391,243 as contrasted with |619,373,699 in 1918. 

The following tables show the net income of the various industrial 
groups as described above, in so far as financial reports for 1919 are 
available: 

PROFITS OF CORPORATIONS IN 1918 AND 1919. 
Part I. — Industries Showing Decreased Profits. 

No. of 

Industry. companies. 1918. 1919. 

Coal and Coke 4 $16,112,927 .$10,499,623 

Iron and Steel 14 222,981,889 ' 13.3,547.469 

Copper and Minerals 16 94,156,071 50,052,684 

Metal Products 13 46.829.778 .33.719,072 

Packing-houses 4 48,254,509 31.651,656 



Total 51 $428,335,174 $259,470,504 

Part II. — Industries Showing Increased Profits. 

No. of 

Industry. companies. 1918. 1919. 

Textile 5 $12,531,026 $15,071,012 

ClotLing and Dry Goods 10 22.479,122 39,177.063 

Sugar 4 16.860.496 24,136,496 

Food Products 13 50,762,298 56,806,549 

Petroleum 10 176,032,752 187,811.654 

Building Material 7 21,929,652 27,919.208 

Railroad Equipment 9 54,334,943 58,148.614 

Mercantile 9 .32.261.369 50,712.041 

Miscellaneous 54 232,182,011 280,608.606 

Total 127 $619,373,699 $740,391,243 

The table showing the industries having higher profits in 1919 

than in 1918 is particularly interesting, because it proves con- 



21 

clusively the scant justification there is for the continued increase 
in the cost of living. Net profits of the five textile concerns for 
which data are available are over 20 per cent higher for 1919 than 
they were for 1918. In the case of the ten clothing and dry goods 
firms the proportionate increase is even greater, being over 75 per 
cent. Sugar profits are evidently still mounting in response to the 
artificially high prices which prevail. The thirteen other food prod- 
ucts concerns and seven oil corporations also show an increase in 
profits. With the w^orld face to face with a housing crisis, the cost 
of building material renders building almost impossible. This is 
reflected in an increase of over 25 per cent in the profits of concerns 
producing building supplies. The cost of rubber goods continues to 
increase, and w^ith it the profits of the rubber industry. And the 
whole is capped by the merchant; nine mercantile establishments 
have increased their 1918 profits by over |18,000,000. 

In spite of the limited number of companies for which 1919 data 
are available, it is interesting to note that the decrease in the profits 
of the distinctively war time industries very closely parallel in 
amount the increase in the profits of the concerns which are today 
exploiting the regular market. In fact, if we add together the profits 
of all the industries hitherto divided between the two tables we dis- 
cover that the total profits for 1919 are very little less than those of 
1918, approximately 4 per cent. In other words, the profits for the 
first year of peace are practically equivalent in amount to the profits 
for the last war year. 

As a matter of fact, the total profits for all corporations for which 
comparable figures are available were, in 1919, 110 per cent over the 
pre-war average. This means that the profits of 1919 were more than 
double the average profits for the jears 1912-1911. Thus again we 
come face to face with the fundamental issue involved. Is the prece- 
dent of exorbitant war profits to establish itself in peace-time in 
dustry? 

What the Individual Income Tax Eeturns Show. 

In concluding this summary it may be well to call attention to 
the fact that high prices, "the high cost of living," tend to make the 
rich richer and the poor poorer; in other words, to increase the 
wealth of those who own property and to reduce the value of the 
income of the man dependent upon wages. Profiteering blesses the 
wealthy and curses the people. 

The individual income tax returns for 1916 and 1917 show con 
clusively that high prices have been a blessing to those who own 



oo 



property, and that the reward has been in proportion to the amount 
of property held. An outstanding result of the war seems to be a 
crop of millionaires. During the three years 1915-1917 the number 
of millionaires in the United States nearly trebled, rising from 2,34& 
in 1914 to 6,664 in 1917. These individuals had an aggregate income 
of 11,709,365,988 or over one-eighth of the entire taxable income of 
the United States. Seventy per cent of this income, or over a billion 
and a quarter dollars of it, came from property. In fact, as we 
examine the data available we find that the higher the income the 
greater the proportion coming from property, and also that the 
higher incomes tended to increase more rapidly than the lower ones. 
Statistics of income for 1917 show that income from property con- 
stituted only 121/2 per cent of incomes between |3,000 and |4,000^ 
while it constituted 92 per cent of incomes over |2,000,000. When 
we pause to consider the fact that the very wealthy are the ones who 
receive the greatest share of the stock dividends and other capital 
distributions, it becomes apparent how large a sum is going annually 
to suppor-t these millionaires not on the basis of real investment^ 
but on the basis of their strategic position. 

In general the outstanding facts which are revealed in the sta- 
tistics published by the Commissoner of Internal Revenue may be 
summarized as follows: 

(1) As a result of the war the number of millionaires in the 
United States has practically trebled. This does not tell the whole 
story ; it merely indicates a much more general increase in the w^ealth 
of the comparatively wealthy. The number of incomes over |100,000 
stood at 2,348 in 1914. In 1917 they numbered 6,664. Incomes 
between |400,000 and |500,000 show the highest rate of increase^ 
from 69 in 1914 to 245 in 1916. In 1917 there were reported 140 
incomes of over |1,000,000 as contrasted with only 60 in 1914. In 
1916 the figure for these incomes of over |1,000,000 stood at 206, 
nearly three and a half times as many as in 1914. All along the 
line the tendency is for the large incomes to increase more rapidly 
than the small. 

(2) These new millionaires w.ere products of the war. They 
developed most rapidly in the centers of war production and finance. 
Their ranks were recruited chiefly from the ranks of capitalists,, 
investors, corporation officials and manufacturers. Their develop- 
ment is closely paralleled by the mushroom growth of corporate 
income. 

(3) This tendency of the rich to grow richer is found not only 
in the centers of wealth, but also in the communities where the gen- 



23 

eral level of incomes is lower. lu each community examined tke 
tendency is for the relatively higher incomes to increase more rapidly 
than those in the lower ranges. 

(4) This is to be explained by the fact that the higher the income 
the greater the proportion of it which is derived from property. In 
other words, it means that property "profiteered'' out of war condi- 
tions. The result can almost be stated as an equation in propor- 
tion — the rate of increase in income as a result of the war is directly 
proportional to the percentage of the income representing return on 
property. It might be suggested here that the higher the income 
the greater the probability that much of the stock from which it is 
derived w^as originally ''water." 

(5) The close relationship between this enormous increase in the 
number of large incomes and property becomes even more apparent 
when w^e see that it reflects growth of corporate income. The cor- 
porate net income of the country increased between 1914 and 1917 
from approximately 14,000,000,000 to over |10,500,000,000. Accept- 
ing all deductions made by the corporations, and further deducting 
10 per cent on new capital, together with all excess profits taxes, it 
w^ill be found that the remaining net profits of 1917 were three and a 
half billion dollars above those of pre-war years. 

(6) This first-hand evidence of profiteering is accentuated by the 
huge undivided profits which are about to flow out to the wealthy 
in stock dividends, following the recent Supreme Court decision. 
This means that the figures already examined are short of the mark. 
Profits were held in reserve for a favorable moment of distribution. 
The increase in large incomes will continue. 

(7) This survey proves that in the division of national income 
between labor and property, property has received a much larger 
share than it did prior to the war. Labor, therefore, must have re- 
ceived a smaller share. This means that the strategic position of 
property has been strengthened, that of labor weakened. 

(8) The real significance of this is that, as a result of the period 
1914-1918, there are at least three times as many people living pri- 
marily off large blocks of the nation's property. In other words, the 
production of the country must, as a result of the war fortunes, 
carry a heavier overhead than previously. This does not mean that 
there is today more property in the country for which rent must be 
paid. It means that the property which existed before the w\ar lias 
been given a higher money value. In other words, as a result of war 
profiteering a greater proportion of national income must go to those 



24 

who have given their share of the nation's property a higher paper 
value. It means to the worker that a smaller proportion of the total 
production of the country will come to him as w^ages. 

Conclusion. 

In concluding this brief summary, which aims to show the three- 
fold relationship between high prices, profiteering and the addition 
to the quota of millionaires^ it should be pointed out that these facts 
as to the enormous increase in the wealth of the wealthy are an un- 
answerable refutation to all attempts to charge labor with profiteer- 
ing, to all attempts to hold labor responsible for the high cost of liv- 
ing. For, as previously pointed out, if invested wealth gets a larger 
return, a larger proportion of the national income than formerly, the 
man w^ho gives personal service or labor is bound to get a smaller 
proportion. The menace of the future lies in the probability that the 
vast profits which are still held in reserve will be capitalized in order 
that, under the pretext of a fair return on capital, those who own 
them may continue to take the larger proportion of national income, 
even at the expense of very great suffering on the part of the work- 
ers, when the overstimulation of war has passed away. 



PART II. 

PROFITEERING AND LABOR COSTS BY 
INDUSTRY GROUPS 

PROFITEERING IN THE SUGAR INDUSTRY. 

The course of the sugar market during and since the world war 
furnishes a conspicuous example of the excessive burdens which 
have been imposed upon consumers since the beginning of the war 
through the artificial stimulation of prices. 

After an increase of from 75 to 100 per cent over the pre-war 
period the retail price of sugar abruptly advanced, in 1919, to 
around IS to 20 cents per pound, an increase over pre-war prices 
of about 14 cents or nearly 300 per cent. 

As contrasted with this enormous advance in prices there was an 
increase in the labor cost of producing a pound of sugar during the 
same period of not more than 2 cents, which represents less than 15 
per cent of the increased cost of sugar to the consumer over the pre- 
war period and only about 18 per cent of the advance in the whole- 
sale price of sugar over pre-war prices. It should be pointed out 
that the labor cost here mentioned is the entire labor cost, including 
both agi'icultural labor required to produce the cane and beets and 
factory labor in the refineries. 

An examination of recent Government reports on the cost of pro- 
duction of sugar shows conclusively that advances in labor costs 
have been a factor of relatively slight importance in the increased 
cost of sugar to the consumer. The extensive tables given in these 
reports have been condensed into the following table, which shows 
the changes in labor costs in relation to total costs and prices. The 
figures represent cents per pound : 

f Cuban ^ ,. Beet n < Louisiana v 

Items 1913-14 1916-17 1917-18 1913-14 1916-17 1917-18 1913-14 1916-17 1917-18 

Agricultural 

labor 0.505 0.966 1.085 1.47 1.522 1.939 1.543 1.764 2.552 

Factory labor.. 0.1.35 0.136 0.191 0.275 0.284 0.393 0.264 0.271 0.410 

Total labor 0.»>5 1.102 1.276 1.745 1.806 2.3.32 1.801 2.035 2.902 

Total cost 2.70* 3.65* 4.93* 4.12 4.36 5.50 4.48 4.79 6.84 

Wholesale price. 3.87 6.28 6.42 4.86 7.52 8.13 4.71 7.71 7.79 
Retail price 4.6 8.2 9.3 4.6 8.2 9.3 4.6 8.2 9.3 



* Includes duty 1 cent per lb. 



25 



26 

In this table the great disparity between increase in labor costs 
and increase in prices stands out in bold relief. In the beet -sugar 
industry labor costs per pound of output advanced from 1.74 cents 
to 2.33 cents, an increase of only 62 hundredths of one cent as con- 
trasted with an advance in the wholesale price of beet sugar during 
the same period from 4.86 cents to 8.13 cents, an increase of 3.27 
cents, or five times the advance in labor costs. In the case of Lou- 
isiana cane sugar labor costs advanced from 1.80 cents per pound in 
1913-14 to 2.96 cents in 1917-18, an increase of 1.16 cents per pound. 
The increase in the wholesale price of cane sugar during this period 
was almost three times as great. 

A still greater disparity between the increase in labor costs and 
the corresponding increase in prices is shown in the case of the 
Cuban sugar crop, which furnishes under normal conditions about 
50 per cent of the sugar consumed in the United States, as against 
only 23 per cent produced in this country. In the Cuban sugar in- 
dustry labor costs for the production of raw sugar advanced 64 
hundredths of one cent per pound in 1913-14 to 1.27 cents in 1917-18, 
an increase of only 63 hundredths of one cent, as contrasted with 
the advance during the same period of 2.55 cents per pound in the 
wholesale price of the same sugar. In other words, the increased 
labor cost represented only about 25 per cent of the increase in the 
wholesale price. 

In the case of retail sugar prices there was an advance from 4.6 
cents per pound in 1913 to 9.3 cents in 1918, an increase of 4.7 cents, 
which was eight times as great as the increase in labor costs in the 
beet-sugar industry, four times as great as the advance of labor 
costs in the Louisiana cane-sugar industry, and seven times as great 
as the increase in labor costs in the Cuban-sugar industry. 

In the case of the sugar crop of 1919-20, the increase in labor costs 
over 1917-18 has been somewhat liberally estimated at 50 per cent. 
On this basis the increase in the labor costs of producing a pound of 
sugar for the season of 1919-20 over the pre-war period is approxi- 
mately 1.75 cents for beet sugar, 2.64 cents for Louisiana cane sugar, 
and 1.26 cents for raw Cuban sugar. These increases are only 12.5 
per cent, 18.9 per cent and 9.0 per cent, respectively, of the increase 
of approximately 14 cents in retail sugar prices since 1914. 

In the case of wholesale prices, current quotations vary from 1 5 ta 
16 cents per pound, an increase of approximately 11 cents over 1914. 
This is about six times the increase in labor costs for beet sugar over 
the pre-war period, more than four times the increase in labor costs 
for Louisiana cane sugar and nearly nine times as great as the in- 



2T 

crease in the labor cost of producing raw Cuban sugar during tlie 
period under consideration. 

The increases above noted in the labor cost of producing sugar are 
obviously of relatively small importance as a factor in the recent 
advance in prices, although when combined with other items of cost 
the aggregate increase affords some justification for higher prices. 
The advance in prices, however, has been greatly disproporlionate 
to the increase in costs. The fundamental reason for the increased 
prices is rather to be found in the increased European demand for 
<^uban sugar. The diversion of the Cuban crop to Europe, by cur- 
tailing the domestic supply, has facilitated speculation and proMleer- 
ing in sugar from the manufacturer down through the jobber and 
wholesaler to the retail sugar dealer. An examination of olticial 
data as to the war profits of sugar producers who have capitalized 
the national necessity will corroborate this conclusion. 

Cost to the Public of Excess Sugar Profits. 

Taking the increase in the price of sugar since 1913 as from 5 
cents to 20 cents per pound, in order that the estimate may be con- 
servative, this is an increase in the nation's annual sugar bill of 
^1,050,000^000 on an annual consumption of 7 billion pounds. 

It is an increase of |630,000,000 per annum in the national sugar 
bill over the acute war period (1917-1918), when the retail price was 
lield at 11 cents per pound. 

In 1913 the margin between the production cost and the retail 
price of a pound of sugar was less than one cent; today the inargin 
is in excess of 10 cents. 

Making every allowance for the increased production costs, and 
allowing the sugar producers the same proportionate increases in 
their margins that labor has received, it is found that the profiteers 
are this year exacting from the American people a tribute of more 
than 1600,000,000 in undue and unjustifiable profits on one of the 
staple necessaries of life. 

Had the producer and the retailer been satisfied to take the same 
proportionate increase in their margins that lal)or receired in its 
share, sugar could te sold to the consumer at 11% ("^Ms per poundy 
instead of 20 cents, a saving of 8% cents per pound. This IIV2 cents 
must then J)e taken as a fair price for sugar. 

Alfred W. McGann, the New York food expert, in an article in 
^'Reconstruction,'^ for February, 1920, estimates the excess profits 
exacted from sugar consumers this year at |940,000,000. Making the 



28 

most liberal concessions to the producer and retailer, we have placed 
the amount at more than $600,000,000, or thirty dollars for every fam- 
ily in the United States. 

The Profits which Resulted prom these High Prices. 

Official figures as to actual earnings and profits of retailers are not 
available, but there is ample reliable evidence as to the abnormal 
earnings of the sugar producers. 

According to a report made by the Secretary of the Treasury to 
the United States Senate, beet sugar producers made income and 
excess profits tax returns showing tiiat they had earned in 1917 
52.28 per cent on their capital stock ; 59.92 per cent on their capital 
actually invested, and 45.53 per cent on their capital actually in- 
vested after all taxes had been deducted. Cane sugar producers for 
the same year in their tax returns showed earnings of 27.28 per cent 
on their capital stock; 238.34 per cent on their capital actually in- 
vested, and 191.04 per cent on their actual invested capital after all 
taxes had been deducted. 

It is to be noted that these producers showed such amazing earn- 
ings when the wholesale price of sugar was 7.7 cents per pound and 
their margin ranged from 0.9 of one cent to 2.2 cents per pound. 
What must their profits not be today with the average w^holesale 
price for 1920 estimated at 15.5 cents per pound, and the margin to 
the producer at 6.6 cents per pound? 

Moody's manual provides what might be termed a revelation as to 
the profits which have resulted from these high prices in the sugar 
industry. In its pages are to be found reports of 12 companies pro- 
ducing something more than one-half the total amount of sugar re- 
fined in the United States for domestic consumption. The group 
contains firms ranging in size from one capitalized at |2,750,000 to 
the American Sugar Refining Company, with a capital of |90,000,- 
000. This great concern refines more than one-third of the total 
amount of sugar consumed in this country. Altogether the 12 con- 
cerns represent over 175 million dollars capital. 

The average net income of this group of 12 companies for the pre- 
war years 1912-14 was |11,306,923, a return equal to 61/2 per cent 
on the claimed capitalization. In 1915. when the pinch of war 
offered greater opportunity for profiteering in Europe and America, 
the net income had risen to |24,549,547. Finally, for the years 
1916-1918 the average net profits of the group had risen to |o^.,174,- 
794, a return of 19 per cent on the claimed capitalizalicn. This 



29 

means that profits were approximately three times the pre-war fig- 
ure. The percentage on investment had also trebled, a trebling of 
profits which merelj^ reflects the new proportion of the price taken 
by the corporations, as shown above. 

This is reflected from another angle in the larger profits shown 
for each pound of sugar produced. The usual contention that the 
increased profits during war years were due to greater production 
is here conclusively disproved, for the actual production of these 
companies was less during the war than in preceding years. The 
net income expressed per pound was 34 one-hundredths of a cent in 
1914, in 1915 it was 63 one-hundredths of a cent per pound, while in 
the years 1916 and 1917 it had reached over a cent a pound, nearly 
three times the pre-war figure. This figure seems small until it is 
realized that each cent per pound means |70,000,000 to the consumer. 

In general, it need only be pointed out that such a study of the 
financial returns of sugar corporations merely serves to confirm the 
conclusion reached through examination of figures relating to costs 
and prices — the conclusion that the corporations have taken advan- 
tage of the war situation to increase the proportion of the price 
taken by themselves as profits, and to decrease the proportion taken 
bj' labor as wages. 

The following table shows the vast increase in the profits of leading 
sugar producers : 

Averaire Net Income for Period. 
Name of Company. 1912-1914. 1916-1918. 

Oahu Sugar Co., Ltd $577,799 $1,685,921 

Pioneer Mill Co 570,419 1.355,6.53 

Utah-Idaho Sugar Co 9.55.977 3,775,722 

Waiahua Agricultural Co., Ltd 528.746 1,326,928 

American Beet Sugar Co 905.928 3,072,969 

Hawaiian Commercial & Sugar Co 1,467,794 2,-566,870 

Ewa Plantation Co 46.3,427 1,533,572 

American Sugar & Refining Co 3,818.666 8,322,348 

Gouth Porto Rico Sugar Co 479,346 1,701,073 

(xuantanmo Sugar Co 94,275 664,223 

Cuban-American Sugar Co 1.264,453 6.452,105 

Central Aguirre {^ugar Co 180,093 1,717,410 

Total $11,306,923 $.34,174,794 

In reading the table it should be noted that the figures do not show 
all the war profits of the American Sugar Refining Co., the largest 
of the American Sugar producers. This compain- charged off |2,000,- 
000 for depreciation during each year of the war period, as compared 
with a depreciation of |821,000 for 1914, and it also deducted from 
earnings before computing net income the sum of 13,383,000 in 1916, 



30 

14,000,000 in 1917 and |2,153,111 in 1918, for "improvements and 
reserves," as compared with similar deductions of |481,907 in 1905 
and 1924,114 in 1914. 

Had these deductions during the war period only equalled deduc- 
tions for like reasons during the pre-war period the American Sugar 
Refining Co. would have shown annual net earnings during the war 
period of 40 per cent more than it did show. In otiier words, heavy 
deductions to avoid reporting large excess profits explain the apjiar- 
ently low percentage of return on capital stock shown by the larger 
campanies. 



31 



PROFITEERING IN THE MEAT TACKING INDUSTRY. 

The outstanding features of the meat-packing industry since the 
outbreak of the European Avar have been an increase of from 50 to 
100 per cent in the prices of meat and an increase of from 300 to 400 
per cent in the profits of the five great packing companies — Armour 
Company, Swift Company, Morris Company, Wilson Company, Inc., 
and the Cudahy Packing Company. In an exhaustive report on the 
meat-packing industry the Federal Trade Commission points out 
that this group of corporations, generally known as thef "Big Five,'' 
has practically a monopolistic control not only over the American 
meat industry, but to a large extent over the principal substitutes 
for meat, such as eggs, cheese, and vegetable-oil products. The 
domination of the meat industry by this group of corporations, ac- 
cording to the Commission, has contributed in large measure to the 
exorbitant burdens imposed on consumers since the beginning of 
the war in the form of excessive meat prices. 

Increase in Prices Not Due to Increased Wages. 

Although rates of pay in the meat-packing industry, as in other 
employments, have been advanced to some extent since the beginning 
of the war as compensation for the increased cost of living, labor 
costs form so small a proportion of the total expenses of the meat- 
packing business that the addition to costs of production involved 
in these wage increases is practically negligible in comparison with 
the advance in the price of meat and meat products. 

The following table, compiled from the statement of Swift & Com- 
pany before the Senate Committee on Agriculture and Forestry, 
shows the labor cost for the average beef animal killed by this com- 
pany in August, 1919, of all processes from slaughtering to the 
distribution of the dressed beef to the retailer, was only 69 cents per 

100 pounds, or 5 per cent of the total cost. 

Expenses for 100 Pounds of Beef. 

Per cent of 

Items. Amount. totel. 

Paid for live animal $1] .12 80.9 

Plant slaughtering, refrigerating, loading, etc 1.21 8.8 

Freight, including 3-cent tax .71 5.2 

Branch house expense, receiving, handling, selling 

and delivery to retailer .70 5.1 

Total cost to packer $13.74 100.0 

Plant labor cost .34 2.5 

Branch house labor cost .35 2.5 

Total labor cost 69 5.0 



32 

This fact, that the labor item in the meat-packing industry is a 
wholly negligible item in the total price, is substantiated by the 
report of the Census Bureau of Manufactures, which shows that 
labor costs represent only 4 per cent of the total expenses of the 
packing industry. It is apparent, therefore, that a wage increase 
of 100 per cent would add less than 5 per cent to the total expenses 
of the industry. Yet the price which the consumer pays for meat 
has increased from 50 to 100 per cent over pre-war prices. 

An additional statement presented by Swift & Company shows 
that the average price received by the company for dressed beef in 
the principal cities was |17.77 per 100 pounds in 1918, an increase 
over 1914 of |5.68, or 47 per cent. Thus it will he seen that the 
increase in price represented eight times the total lahor cost of |0.69, 
and the 1918 price represented 25 times the total laJ)or item. 

An examination of w^holesale and retail prices of meat for the 
period serves further to emphasize the fact that increases in price 
were out of all relation to labor cost in the industry. The advance 
in the wholesale price of beef was over 12 times as great as the total 
labor cost of the product, while the advance in the retail price was 
over 14 times the entire cost of labor in the meat-packing industry. 
As a matter of fact, the cost of packing-house labor represented only 
about one-thirtieth of the retail price of beef in 1918. 

It is apparent that even an increase in wages of 1,000 per cent 
would not account for the tremendous increase in the price of meat 
over pre-war prices. In view of the fact that the minimum wage 
increases given packing-house employees during the war probably 
did not exceed an average of 50 to 75 per cent, it is evident that 
labor has received a very small percentage of the increase in the 
proceeds of the industry. 

Of the increased returns to the packers from the sale of their 
products a certain percentage has necessarily been absorbed by the 
advance in the price of live stock, but in this branch of the meat 
industry, also, the power of the Big Five has been used to secure 
illegitimate profits by manipulating prices and otherwise defrauding 
live stock producers. This is shown by the Federal Trade Com- 
mission in its analysis of packer control of stock yards and terminal 
facilities. 

In view of the great disparity between labor costs and prices in 
the meat industry, it is absurd to contend that wage increases are 
in any material degree responsible for the increase in the price of 
meat. These increases, as in the case of other commodities, must 
be attributed in part to the cupidity of dealers and retailers; but 



33 

tlie largest part of the responsibility undoubtedly rests with the 
monopolistic profiteering of the Big Five. 

Profiteering as Shown by Official Reports of Net Income. 

That the manipulation of meat prices during the war was im- 
mensely profitable to the packers may be inferred from the fact that 
their net profits in dollars, even after the deduction of war taxes, 
were practically three times as large in 1917 as for the pre-war 
years. According to the Federal Trade Commission "four of these 
concerns have pocketed in 1915, 1916 and 1917 |140,000,000. How- 
ever delicate a definition is framed for 'profiteering' these packers 
have preyed upon the people unconscionably." These huge profits 
were not due to increased production. According to the Federal 
Trade Commission : 

"These great increases in profits are not due solely to increased 
volume of business. The sales of these companies in this period 
increased 150 per cent, much of this increase being due to higher 
prices rather than to increased volume by weight; but the return 
of profit increased 400 per cent, or two and one-half times as much 
as the sales." 

Turning to the reports of the Big Five as published in Moody's 
Manual, it appears that the average annual net income and per- 
centages earned on capital stock before the war as contrasted with 
the war years were as shown in the following table (stock dividends 
subsequent to 1912 being deducted from capital stock when known) : 

Average annual net Percentage on capital 
income for period. stock. 

Name of Company. 1912-1914. 1916-1918. 1912-1914. 1916-1918. 

Swift & Company $9,067,647 $25,424,092 12.1 30.5 

Armour & Company 6,413,250 18,880,467 32.1 88.9 

Cudahy Packing Company 1,286,986 3,606.251 10.7 25.4 

Wilson & Company 1,400,460 6,349,944 4.7 20.9 

Morris & Company 1,978,441 4,383,714 65.9 146.1 

Total $20,146,784 $58,644,468 14.4 36.9 

This table shows for these five companies an average net income 
for the war years nearly three times the net income for the previous 
period. And it must be remembered that the net income here given 
means net earnings after the deduction of all charges for taxes, etc. 
As a matter of fact, in the years of war taxation, enormous amounts 
were deducted for general officers' salaries, advertising bills and 
other excessive overhead charges. The net profit as reported to the 



34 

Federal Trade Commission shows a much greater proportionate 
increase. 

It is interesting to note that between 1912 and 1918 the net earn- 
ings on capital stock amounted to over $266,000,000, nearly double 
the value of the total capital stock, which for the pre-war years was 
1140,000,000. In order to cover up such enormous earnings new 
capital stock was added to the extent of Approximately 1 120,000,000, 
bringing the total up to almost f260,000,000. But approximately 
three-quarters of this additional stock was stock dividend capitali- 
zation and did not represent new capital put into the business. And 
even if the capital stock is taken at its face value the earnings for 
the seven-year period will be seen to exceed in amount the entire 
capital value of the concerns. At present the surplus on hand 
amounts to |150,000,000, meaning that undivided profits still equal 
the entire value of the capital stock in 1914. 

One of the important methods by which the big packers exact this 
huge annual tribute from the country is through the control of sub- 
sidiary and affiliated corporations such as stockyards, rendering 
companies, refrigerator car lines and related enterprises. In many 
instances the principal stockholders in the Big Five also own large 
blocks of the stock in these subsidiary concerns. In 1916 these sub- 
sidiary corporations paid dividends averaging about 30 per cent on 
their inflated capitalization and ranging as high for one of the 
companies — the Iowa Kendering Company — as 171 per cent. 

In addition to regular dividends these subsidiaries have given the 
big packers large cash bonuses and valuable plant sites, not to men- 
tion the large blocks of stock dividend which they have distributed to 
the big packers and to the principal stockholders. A study of such 
records as were available, by the Federal Trade Commission in 1918, 
showed that the big packers had in the past received gratis more 
than 19,000,000 from the stockyards in the form of cash, land, build- 
ings and bonds, in addition to the many more millions of dollars' 
worth of stocks which they had received free of cost. Practically 
all of these gifts were paid for out of the large earnings of the stock- 
j^ard companies. 

In fact there is todaj^ practically no real relationship between 
the holdings of the Big Five in these subsidiaries and their actual 
cash investment. To cite' a couple of instances. Through the organi- 
zation of the Chicago Stockyards Company of Maine in 1911, sur- 
plus values in the Union Stockyards and Transit Company, the Chi- 
cago Junction Railway Company and the Chicago Junction Railway 
and Union Stockyards of New Jersey, aggregating |6,936,136, on 



35 

December 31, 1917, were made available to Armour and Prince 
through, an investment of only |1, 000,000. Up to January 1, 1918, 
Armour and Prince had received dividends from the Maine Company 
aggregating over |2,000,000, or over 200 per cent on their invest- 
ment. In another instance — the Globe Eendering Company — only 
1200,000 of the |2,000,000 capital stock was issued for cash. The 
balance (|1,800,000) was given to stockholders and represents noth- 
ing more tangible than so-called good-will. 

In 1916 the dividends of the packer-owned rendering companies, 
paid upon the inflated valuation, were from three to eight times the 
1914 dividends, the general run being four times the dividends of 
that year. The per cent of profit to net worth had more than 
doubled. And if these rates of profit were reckoned on the actual 
cash investment, the percentages would have ranged as high as 90 
per cent. 

The actual net incomes of the Big Five have already been com- 
mented upon. The increase in the rate of profit on net worth ranged 
from about 200 per cent increase for Armour and Morris to more 
than 300 per cent increase for Wilson & Co. In 1918, as a result of 
Government regulation, the rate of profit on net worth decreased 
to some extent, but, with the exception of Morris & Co., was still 
at least 100 per cent greater for each company than in 1913. The 
rate of profit on net worth as reported by Wilson & Co. was 300 per 
cent greater in 1918 than in 1913; that of the Cudahy Company 
shows an increase of about 150 per cent, Armour & Co. an increase 
of 100 per cent. Swift & Co. an increase of about 200 per cent and 
Morris & Co. a gain of 64 per cent. These statements are based upon 
the reports made to the Federal Trade Commission. 

Altogether the case against the meat packers is overwhelming. 
Higher dividends, stock dividends in one instance equal to 400 per 
cent of the capital stock and amounting to the enormous sum of 
180,000,000, accumulation of surplus equal to the entire former 
capitalization — all these show the profits which the packers have 
reaped from the war. They prove conclusively that prices have been 
raised far above the figures warranted by increased expense, a fact 
which is borne home with double force when it is remembered that 
the increase in the price charged by the Big Five for beef was eight 
times the entire labor cost of the product in the packing industry. 
By raising prices through the combination of their monopoly and 
the country's pressing need, these great corporations have taken 
profits aggregating over a quarter of a billion dollars since 1912. 



36 

PROFITEEKING IN CANNED GOODS AND OTHER 
FOOD PRODUCTS. 

The extent to which the meat packers profited by the war has 
already been discused. There is another phase of the country's food 
production which is constantly growing in importance, namely the 
canning industry. From investigations made by the Federal Trade 
Commission it is possible to determine to a limited degree the extent 
to which the high prices of canned goods are due respectively to 
labor cost and to profits. Aside from canned meat the two most 
important branches of the canning industry are vegetable and fish 
canning. As might be expected, the great meat packers have been 
reaching out towards control of these substitutes for meat. To what 
extent this has influenced prices cannot be determined. In general, 
it may be pointed out that increase in price has been due to a neglig- 
ible extent to increased labor costs and to a very great extent to 
increased profits. 

Prices and Profits in the Canned Vegetable Industry. 

The great variety of canned vegetable products make it very diffi- 
cult to arrive at average figures which will correctly picture the 
items of cost which enter into the prices of these articles. The 
situation is further complicated by the great variation in costs 
between various sections of the country. The following general 
statement must then be taken as indicating the general apportion- 
ment of the price of these articles rather than as a complete descrip- 
tion of the whole industry. The cost studies made by the Federal 
Trade Commission cover only two years, 1916 and 1917. Hence it 
will be impossible to compare the war period with the pre-war years. 
A comparison of data for 1917 with those for 1916 will show, how- 
ever, that the tendency is for the porportion of the price which labor 
received to decrease while the proportion awarded to profits 
increases. 

In 1916 the labor cost of canning varied from 12^4 per cent to 23 
per cent of the total canning cost, the weighted average being about 
13 per cent. In 1917 this proportion had decreased to 12 per cent. 
Between 1916 and 1917 the cost of labor increased by about 19 per 
cent, the cost of canning about 34 per cent, while wholesale prices 
advanced between 40 per cent and 90 per cent. In many instances 
this greater proportional increase in prices was due, not only to the 
increased profits taken by the canner, but also to the increased 



37 

charges for distribution due to numerous jobbers' margins for 
reselling. 

Labor has received a very small proportion of the increase in 
wholesale prices. In the case of canned corn, for example, wholesale 
prices increased |1.53 a case between 1916 and 1917, and of this 
amount labor received 4 cents. The wholesale prices of canned 
tomatoes during the same period advanced fl.21, of which labor 
received as its share 5 cents. The wholesale price of canned peas 
advanced |0.75, of which amount labor received 3 cents. The wage 
increases granted to labor, therefore, cannot be held responsible for 
the increases in the prices of canned vegetables which have taken 
place since 1916. 

The following table shows the relation of labor cost to total cost 
and wholesale price for three standard canned vegetables. It also 
affords a basis for estimating the comparative increase of profits 
and labor costs between 1916 and 1917. The material is largely 
taken from the results of an investigation by the Federal Trade 
Commission which covered concerns producing about 25 per cent 
of the total output of the country. The figures given are for a case 

of two dozen cans. 

• 

Per cent 
1916. 1917. increase. 

Canned Corn, No. 2 Can :, 

Labor cost 0.1810 0.2215 22 

Total cost 1.3207 1.709G 29 

Canner's profit 0.1114 0.3971 256 

Wholesale price 1,7000 3.2292 98 

Canned Tomatoes, No. 3 Can : 

Labor cost 0.2323 0.2S36 22 

Total cost 1.7487 2.7035 54 

Wholesale price . 2.1560 3.3646 56 

Canned Peas, No. 2 Can : 

Labor cost 0.1979 0.2272 14 

Total cost 1.4245 1.8503 29 

Canner's profit 0.1954 0.3424 75 

Wholesale price 1.7640 2.5152 42 

From this table it is apparent that in every case the smallest 
mcrease, either in money or in per cent, is the increase in the cost 
of labor ; and that the greatest proportional increase is the increase 
in profit margins. Thus in the case of canned corn the cost of labor 
increased by four cents while the canner's profit increased 28 cents. 
An increase in labor cost of 22 per cent contrasted with an increase 
in profits of 256 per cent. In the case of canned tomatoes the 
canner's profit is not shown, but the margin between cost and selling 
price has increased by 62 per cent in contrast with an increase in 
labor cost of only 22 per cent. In the case of canned peas the can- 
ner's profit in 1916 was approximately equal to the labor cost. In 



38 

the following year the profit item was approximately 50 per cent 
more than the labor cost. Such figures show how unjust it is to 
attribute the increasing prices in this industry to the increased 
wages received by labor. In fact, labor in 1917 received a smaller 
per cent of the cost, as well as a smaller per cent of the wholesale 
price, than in the previous year. The following table shows the 
decreasing proportion of the labor cost as shown above: 

Per cent of labor cost Per cent of labor cost 
• to total cost. to wholesale price. 

1916. 1917. 1916. 1917. 

Canned Corn, No. 2 can 13.7 13.0 10.6 6.9 

Canned Tomatoes, No. 3 can 13.3 10.5 10.8 8.4 

Canned Peas, No. 3 can 13.9 12.3 11.2 9.0 

This merely shows that while the canner's profit has been taking 
a larger proportion of the purchase price of canned vegetables, the 
amount received by labor has been absorbing a smaller and smaller 
proportion of the consumer's money. 

Profits of Canners. 

Such increased margins per case would naturally result in very 
largely increased profits to the canning companies. From the results 
of an investigation this appears to be the case. The average return 
for companies whose statistics were available for both years was 9 
per cent in 1916 and 32 per cent in 1917. This means that profits 
had more than tripled. According to the Federal Trade Commis- 
sion the profits of tomato packers rose from 17 per cent on invest- 
ment in 1916 to 60 per cent in 1917, an increase of 253 per cent. Pea 
packers show a corresponding increase from 8 per cent to 21 per cent 
an increase of 163 per cent, while corn packers show an increase 
from 12 per cent to 29 per cent, an increase of 142 per cent. Only 
two instances, the string bean packers (only two concerns) and the 
mixed fruit packers (only four concerns) show a decrease in profits, 
and in both the decrease is slight. The mixed vegetable packers in- 
creased their profits from 6 per cent to 27 per cent, an increase of 
350 per cent. 

In general, the Federal Trade Commission found that the profits 
of concerns with a total capitalization of approximately |12,000,000 
showed profits for 1916 of |1,224,009, as contrasted with profits of 
13,876,263 in 1917. In 1917 the highest return {Q6 per cent) was 
earned by the tomato packers and the corn packers of Maryland and 
Virginia. The Wisconsin pea section shows an average return of 



39 

32 per cent, and the Middle Western corn and tomato sections show 
a return of 30 per cent. 

From the report of the Federal Trade Commission it would appear 
that the margins of profit taken by the wholesale grocers were not, 
in the main, abnormally large. They show approximately 5 per cent 
net profit on their sales. Their large business enabled them to make 
profits of approximately 15 per cent on invested capital. These 
profits were only slightly larger than those made during the preced- 
ing year. If there was any notorious profiteering in distribution, 
it was probably made by brokers who stepped out of their roll and 
actually acted as jobbers, buying the goods and selling at high prices. 
Brokers in New York netted as high as 23 per cent by operating in 
this manner. In 1916 the average earnings netted by Chicago 
brokers was approximately 6 per cent, while New York brokers in 
the same year earned approximately 15 per cent. 

The outstanding feature of this branch of the food industry is 
undoubtedly the high profits of the packers. Unfortunately, no 
material for the pre-war years is at hand. But the enormously 
greater relative increase of canners' profits when contrasted with 
the increase in labor costs indicates that the canning concerns are 
largely to blame for such increase in the price of canned goods as 
was unnecessary. 

Prices and Profits in the Canned Salmon Industry. 

In the canned-salmon industry the same general situation exists 
as that described in the other industries of the country. The labor 
costs have increased very slightly, less than 1 per cent, while prices 
have increased approximately 62 per cent. In fact, the cost of labor 
per case of canned salmon increased only four-tenths of a cent, 
whereas the average net profit of the canner increased by $1.17 per 
case, an increase of over 100 per cent. The increase in wholesale 
price was |3.19, or more than 790 times the increase in labor cost. 
These figures are for the years 1916 and 1917. To emphasize the 
comparative insignificance of the labor cost in salmon canning, it is 
only necessary to suggest that in 1917 it amounted to 70.5 cents per 
case of 48 pound cans. 

The following table, roughly drawn to show the importance of the 
various items in causing the increased price of canned salmon, is 
based upon material collected by the Federal Trade Commission 
from canneries packing over 50 per cent of the country^s total pro- 
duction. The figures given are averages struck to indicate general 
tendencies throughout the entire industry. 



Per cent 


Cost. 


Per cent 


Per cent 


of price. 




of price. 


increase. 


20.7 


$1,431 


17.2 


34.24 


13.6 


.705 


8.5 


.57 


14.9 


1.146 


13.8 


50.00 


21.1 


1.148 


13.8 


6.0 





4.430 


.... 


22.58 


8.3 


1.63 


19.5 


282.6 


21.4 


2.27 


27.2 


106.4 


100.0 


8.33 


100.0 


62.0 



40 

, 191C ^ , 1917- 

Items. Cost. 

Raw fish $1,066 

liabor 701 

Other supplies 764 

Other expenses 1.083 

Total costs 3.614 

Probable selling expense, 

including brokerage 426 

Net profit of packer 1.10 

Wholesale price 5.14 

The most interesting single fact in this table is that the propor- 
tion of the price received by labor has very materially decreased in 
the course of a single year. In 1916 the labor cost absorbed 13.6 
per cent of the wholesale price, or over one-eighth; in 1917 it ab- 
sorbed 8% per cent, or only approximately one- twelfth. Expressed 
in terms of the total cost of producing the case of 48 pound cans, 
the labor cost declined from 19.4 per cent to 15.9 per cent. And it 
would appear that the proportion of the selling price which labor 
lost was added onto the proportion received by the packer. For the 
proportion of net profit taken by the packer shows an increase from 
21.4 per cent to 27.2 per cent. No item in the list shows so small an 
increase as the labor cost, and no item shows so large an increase 
as the margin between cost and wholesale price. This would seem 
to afford very good grounds for suspecting the existence of profiteer- 
ing as the basis for high prices in this particular food product. 

War Profits op the Canners. 

In 1917 the profits of the salmon packers were indeed high. 
Although 12 out of the 90 companies examined by the Federal Trade 
Commission failed to make any profit, the average rate of return 
on investment for tho whole group was over 52% per cent, as con- 
trasted with slightly over 22 per cent for 1916. Of the 78 companies 
making a profit, only 12 made under 15 per cent; 30 made between 
15 and 50 per cent; 25 made between 50 and 100 per cent, and 11 
made over 100 per cent. The contrast between 1916 and 1917 is 
evident when it is realized that profits of over 50 per cent were 
realized upon approximately one-sixth of the total pack in 1916, 
while in 1917 this fraction had risen to over one-half. Fifty per cent 
profit on invested capital for over half the industry, giving an aver- 
age profit for the industry of over 50 per cent on invested capital, 
is clearly the natural reflection of the great increase in the propor- 
tion of the selling price taken by the salmon packers. 



41 



Perhaps one of the most striking features of this profiteering in 
1917 is the fact that packers' profits in 1917 were equivalent to over 
one-half of the total cost of production, and to over one-third of the 
selling price of the article. This was due in part to the fact that a 
portion of the goods sold at 1917 prices represented the 1916 pack at 
the lower costs. How^ever, the high price paid by the consumer 
reflects these enormous profits none the less. Between 1916 and 
1917 the packers practically doubled their profits. 

Even when we have examined the packers' profits we have not 
told the whole story of the profits which are taken before the case 
of canned salmon reaches the retail dealer. For practically the 
entire output is sold through brokers, who in many instances finance 
the packers, carry all information concerning market conditions, 
and sell the entire output of the concern which they represent. As 
the product passes through the hands of these brokers another profit 
is taken. In many instances it is difficult to say whether these 
broker profits are exorbitant or not, for many of them require very 
little investment upon which the rate of profit can be reckoned. 
But in the case of those that handle considerable quantities of 
canned salmon, and, perhaps, finance the packer, there is sufficient 
investment so that we can arrive at a general estimate of profits. 

In arriving at some estimate of the profits of these brokers the 
Federal Trade Commission has considered 13 Pacific Coast canned 
salmon brokers with an average investment of approximately |112,- 
000 in 1916 and |119,000 in 1917. The Commission considered gen- 
eral salaries as a part of profits. On this basis the net earnings plus 
salaries of these concerns were equivalent to 42 per cent on invest- 
ment in 1916, and to over 54 per cent on investment in 1917. The 
Commission also considered the profits of eight general food brokers 
in other sections of the country handling a considerable amount of 
canned salmon These companies had an average investment in 1916 
of approximately |39,000, and in 1917 of approximately |43,000. 
Probably because of the smaller investment, the profit rates were 
much higher— 101 per cent in 1916 and 148 per cent in 1917. 
Although it would be unfair to jump immediately to the conclusion 
that the profits of these brokers were exorbitant — for the relation- 
ship between returns and investment in such a business can hardly 
be treated in the same way as in a productive enterprise with large 
capital investment— still, it can be seen that the increased profits 
of brokers in 1917 undoubtedly added to the price paid by the con- 
sumer for the product. As a matter of fact, the average brokerage 
per case rose from 19.4 cents in 1916 to 33.7 cents per case in 1917, 



42 

a rise which is more than is justified by the increased operating 
expenses. 

The general conclusion is plain enough that the increase in price 
of canned salmon, and, in general, canned foodstuffs, was consider- 
ably more than was justified by increased labor costs or general 
increased costs. That the excess was based upon increased margins 
of profit seems a safe conclusion from the above analysis of costs 
in the industry. This conclusion is substantiated by the fact that 
profits doubled between 1916 and 1917, reaching the point in the 
latter year where they averaged over 50 per^ cent upon invested capi- 
tal. In this industry the finger of the Big Five meat packers is 
again visible, reaching out to control meat substitutes. But to what 
extent these meat interests were able to influence prices it is impos- 
sible to say. 

Profits of Food Products Industry As Shown in Published 

Reports. 

Turning from the reports of the Federal Trade Commission to the 
financial manuals, we find confirmation of the conclusion that there 
has. been profiteering in the food industry. These manuals enable 
us to go back behind 1916 to the pre-war years. Taking a great 
variety of companies manufacturing everything from cereals to 
canned seafood, providing fruits, teas, groceries, etc., we find that 
their profits for the years 1916-1918 were double the profits for the 
pre-war years 1912-1914. Specific instances from the various 
branches of the industry furnish an interesting criterion for the 
increase in food prices. 

In connection with the preceding discussion of the salmon-pack- 
ing industry it is interesting to note the increased profits of the 
Alaska Packers' Association, one of the largest concerns in the in- 
dustry, and one which seems to have developed intimate relations with 
the Meat Packers. The average profits of this concern jumped from 
1436,967 for the pre-war years 1912-1914 to |1,312,329 for the years 
1916-1918, approximately three times the former figures. This 
meant an increase in rate of return on investment from 7.6 per cent 
to 22.8 per cent. For the two years 1916 and 1917 this concern 
averaged over one-quarter of its capital stock each year. 

The profits of the United Fruit Company have been steadily 
increasing. The average for the pre-w^ar years was |4,162,69l, 
equivalent to 11.4 per cent on the capital stock. For the years 1916- 
1918 the average was over |13,000,000, a return of 26.4 per cent on 



43 

the investment, while for the year 1918 the profits were ©ver $14,000,- 
000, approximately two and one-half times the pre-war average. 

Turning to a representative of the flour industry, we find a simi- 
lar increase in profits during the war years. The Standard Milling 
Company increased its net earnings from an average of |S57,257 
for the years 1912-1914 to an average of |1,679,126 for the years 
1916-1918. The fact that this company only shows a rate of 7.0 
per cent in the earlier years and 14.8 per cent in the w^ar years prob- 
ably signifies heavily watered capital value, for, according to the 
Federal Trade Commission, the average profits of the milling indus- 
try rose from 12 per cent in 1916 to nearly 38 per cent in 1917. The 
Commission's figures are based upon an investigation of 40 per cent 
of the industry. 

The other cereal concerns show varying results. The Quaker Oats 
Company, making an average profit of over |2,000,000, or over 15 
per cent for the pre-war years, increased its profits to double that 
figure in 1917, while the average for the war years was over |3,800,- 
000, or more than 25 per cent. On the other hand, concerns such as 
the Shredded Wheat Company and the National Biscuit Company 
show little, if any, increase in profits due to the war. The Jewel 
Tea Company, handling tea and groceries, doubled its earnings as 
a result of the war, but as a result of the policy of capitalization, 
whereby an original investment not over |5,000 apparently became 
116,000,000 worth of capital stock with |12,000,000 written as capi- 
talized "good-will," makes it impossible to compare rates of return. 

Perhaps the Corn Products Refining Corporation should be men- 
tioned to make the picture complete, especially because of the 
manipulation of its earnings in order to show profits below those 
actually taken. Its published report shows an increase in average 
earnings from |2,213,561 for the years 1912-14 to |8,694,869 for the 
years 1916-1918. In other words, the profits quadrupled. In 1917 
these profits were over |11,000,000, or five times the pre-w^ar average. 
But these returns for war years are heavily reduced by excessive 
charges for depreciation and for "Federal Tax Reserve." The aver- 
age depreciation charge for the years 1912-1914 was approximately 
1462,000. For the years 1917-1918 it was five and one-half times as 
large, approximately |2,564,000. In 1918 the corporation wrote 
off more than |3,000,000 to depreciation. In addition to this exorbi- 
tant depreciation charge, the corporation set aside in 1917 |3, 500,000 
as "Federal Tax Reserve," and for this item in 1918 the enormous 
sum of $13,000,000. This is merely an interesting example of cnm- 
berless attempts to conceal the huge profits made during war vears. 



44 

These specific instances may in general be taken as summarizing 
the war profiteering in the food industry. Higher margins resulted 
in new earnings approximately twice as large for the war years as 
for the previous period. When considered in conjunction with the 
enormous earnings of the Meat Packers, it is apparent that the food 
interests have taken a huge toll from the people of the country, a 
toll which has added very considerably to the high cost of living. 
Throughout the whole investigation it is apparent that the actual 
cost of production and distribution is very considerably below the 
price which the consumer must pay, and that today the actual cost 
represents a smaller proportion of the price than it did in pre-war 
years. 



45 

PKOFITEERING IN THE BOOT AND SHOE INDUSTRY. 

An analysis of retail shoe prices in order to determine the various 
items upon which the consumers' money is expended is not so simple 
a matter as in the case of a product such as sugar or copper. For 
the primary product in the shoe industry passes from the packer to 
the tanner, thence to the manufacturer, and very likely to the whole- 
saler, before it reaches the retail merchant Each one exacts his 
profit, so that when all profits are above normal these profits pyramid 
upon each other. In 1918 about three-fifths of the consumers' 
money spent for shoes went into margins taken by the various hands 
through which the goods passed. In other words, the actual cost 
of producing a pair of shoes is only about two-fifths of the price 
which the consumer pays. All of this is clearly brought out in the 
recent report of the Federal Trade Commission on The Leather and 
Shoe Industries (Washington, 1919). 

Packers^ Profits on Hides. 

The report just refered to traces the cost and profits of shoe mak- 
ing back to the hides. Unfortunately, no data is at hand which will 
permit a thorough analysis of hides sold by the big packers, as, to 
the packers, hides are merely a by-product of their meat business, 
although an enormously profitable one. But the cost and the profit 
margins of country, or non-packers' hides is known, and from these 
data it is clear that the great increase in the price of hides during 
the past few years meant a greatly increased margin to the big 
packers, who control approximately 70 per cent of the American- 
grown product and a large proportion of the imported hides. Be- 
tween 1914 and 1917 the price of packer hides increased 68 per cent, 
as contrasted with an increase of only 42 per cent for country hides, 
although prior to 1914 the differential in favor of packers' hides 
had regularly been 12 per cent. As the margin for country hides 
remained fairly constant between one and two cents per pound 
the following table (based upon figures given by the Federal Trade 
Commission's report) will serve to indicate with approximate ac- 
curacy the progress in packers' margins per pound : 



Year. 



1913. 
1914. 
1915. 
1916. 
1917. 



, Country hides , 


, Packers' hides ^ 


Price per Margin per 


Price per 


Margin per 


pound, pound, 


pound, 


pound. 


cents. cents. 


cents. 


cents. 


16 1.30 


ISVa 





16^4 1-30 


19 


1.30 


20 1.30 


24 


2..55 


21 1.30 


26 


3.55 


23 1.30 


32 


7.55 



46 

Costs and Profits in the Tanning Industry. 

The Federal Trade Commission report analyzes the production 
costs of five tanneries producing an average of 184 million pounds 
of leather per year. The cost of producing sole and upper leather 
is itemized for the years 1914, 1916 and 1917. From the figures 
given it is apparent that the percentage increase in the tanners' 
profit is in all cases above the increase in any other items. Thus 
profits increased from 176 to 303 per cent, while the only other item 
which shows anything like a corresponding increase is administra- 
tion cost, which is, of course, largely made up of salaries of officials. 

Between 1914 and 1917 the price of upper leather advanced 25 
cents per foot. Analysis of this increase shows that 14.1 cents was 
due to increased cost of hide, 2.5 cents to the increased cost of other 
materials, 7.5 cents to the greater profit taken by the tanner, and 
only 1.2 cents to the increased cost of labor. And this despite the 
fact that upper leather shows the highest labor cost and the greatest 
increase in labor costs. As a matter of fact, the percentage of labor 
cost to the total cost of tanned leather is very small, and as the 
price has risen this percentage has declined. Labor in the tanneries 
received 6.84 per cent of the price paid for tanned leather in 1914, 
as contrasted with 5.48 per cent in 1916 and 5.85 per cent in 1917. 
On the other hand, tanners' profits absorbed 11.41 per cent of the 
price in 1914, 25.19 per cent of the price in 1916, and, despite, the 
excess profits tax, over 20 per cent in 1917. 

The figures for sole leather differ slightly, but show the same 
general tendency. The increased margins shown resulted in greatly 
increased earnings to the big tanning corporations. Concerning 
these the Federal Trade Commission report says : 

''The earnings on investment in the tanning business were very 
much greater in 1916 and 1917 than they were in 1914 and 1915. 
The poorest results were in 1914. Of 53 representative companies, 
24 earned less than 10 per cent in 1914, and 11 had earnings of over 
20 per cent, while none earned as much as 40 per cent. In 1917 only 
two of the 53 companies earned less than 10 per cent, 32 earned over 
20 per cent, and 9 earned over 40 per cent." 

The report gives a table showing the rate of return on investment 
for these 53 companies. It summarizes the returns from 50 of these 
companies in the following table, in which the companies are grouped 
according to amount of investment : 



1915 


1916 


1917 


Per cent. 


Per cent. 


Per cent. 


15.7 


24.0 


32.6 


23.5 


26.6 


34.4 


16.0 


30.4 


29.3 


16.4 


34.6 


25.4 



47 

1914 
Groups. Per cent. 

Under $100,000 9.7 

$100,000 to $250,000 13.6 

$250,000 to $1,000,000 12.4 

Over $1,000,000 12.8 

Total 12.9 16.5 33.8 25.7 

From this table it is apparent that the rate of earnings on invest- 
ment in the tanning industry during the years 1916-1917 was more 
than double the rate for previous years, the average for 1916-1917 
being 29.7 per cent, as contrasted with 14.7 per cent for 1914-1915. 

The Central Leather Company in its reports as published in 
Moody's Manual shows average net earnings for the three years 
1912-1914, inclusive, of approximately |5,000,000. This contrasts 
with an average of approximately |12,000,000 for the three years 
1915-1917, and of nearly |15,000,000 for the two years 1916-1917. 
The average net earnings on capital stock were 6I/2 per cent for the 
years 1912-1914, 16% per cent for the years 1915-1917, and over 
20 per cent for the two years 1916 and 1917. This increase in earn- 
ings was not due simply to increased production, for net earnings 
represented 16 per cent of the gross sales of the company for the 
years 1916-1917, as contrasted with only 8 per cent for the years 
1912-1914. 

In general, it can be stated with assurance that this profiteering 
in leather was based upon increased margins taken upon each unit 
of leather sold. Profits and margins correspond. According to the 
Federal Trade Commission : 

"The figures for earnings are in harmony with the comparisons 
already made between the cost of producing sole leather and the 
prices at which it was sold. It will be recalled that the increase in 
price was considerably more than the increase in cost. The increases 
in this table point conclusively to the fact that these conditions 
existed in respect to most, if not all, kinds of leather. * * * 
As will appear later, the profits realized by tanners were generally 
somewhat higher than the profits realized by shoe manufacturers.'' 

How THE Price of a Pair of Shoes is Divided. 

From the material presented by the Federal Trade Commission's 
report relative to costs in the actual manufacture of shoes it is pos- 
sible to draw certain very definite conclusions. In the first place, 
the amount which went to labor increased proportionally less than 
any other important item. As a matter of fact, the Commission 



48 

points out that labor generally constituted a lesser percentage of 
the total cost in 1917 than it did in 1914. According to the report : 
''There is no shoe shown in the table where comparisons can be made 
in which the percentage was not less in 1917, and in many instances 
it was very much less than in 1914." In fact, the decline in the 
percentage of the cost which went to labor Avas marked. On the 
other hand, the percentage of the cost absorbed by leather was 
materially increased. Margins also steadily increased. According 
to the Federal Trade Commission : 

"An inspection of the above table shows that of 50 men's shoes 
where comparisons can be made between 1914 and 1917, 34 had a 
gross margin of 7 per cent or more in 1914, and 38 were in this 
class in 1917. Only 10 had a margin of 20 per cent or more in 1914, 
while 17 had this high margin in 1917. In 1914 only 2 had a margin 
exceeding 30 per cent, while 8 exceeded this percentage in 1917." 

In the case of women's shoes, the increase in margins was even 
greater. A general survey of the whole situation will, perhaps, 
make more clear just what has happened to the money paid by the 
consumer for shoes as a result of the increase in profits all along 
the line. For this purpose a single standard style medium-priced 
shoes has been taken, known to the trade as Kussia Calf, bal. gw. 
By combining the data given in tables in the Trade Commission 
report, showing the various processes through which the leather 
passes before it reaches the consumer as a pair of shoes, it has been 
possible to make the following table, which shows approximately 
the division of the consumers' money for the years 1914. 1916 and 
1917. 

Division of Price Between Items of Cost and Profit. 

, 1914- 

Cost 

per 

Items pair 

Hide cost $1.03 

Packer's margin 08 

Tannin;cr material 20 

Labor 09 

Factory expense 08 

Administration expense .02 

Tanner's profit 19 

Shoe manufacturing 
material 28 

Labor 71 

Overhead 30 

Manufacturer's profit . . .24 

Retail profit 1.78 

Retail price 5.00 100.0 5.50 100.0 8.50 100.0 3.50 70.0 



J- J- A 




JJ.U ^ 




■>-< ^ 






Per 


Cost 


Per 


Cost 


Per 


Increase 


cent of 


per 


cent of 


per 


cent of 


1917 over 1914 


total 


pair 


total 


pair 


total 


Amonnt Per cent 


20.5 


$0.91 


16.6 


$1.44 


16.9 


$0.41 


39.8 


1.6 


.17 


3.1 


.46 


5.4 


.38 


475.0 


4.1 


.17 


3.1 


.22 


2.6 


.02 


10.0 


1.8 


.09 


1.6 


.12 


1.4 


.03 


33.3 


1.7 


.08 


1.4 


.11 


1.3 


.03 


37.5 


0.3 


.01 


0.2 


.04 


0.5 


.02 


100.0 


3.8 


.48 


8.8 


.61 


7.2 


.42 


221.1 


5.6 


.31 


5.7 


.33 


3.9 


.05 


17.9 


14.2 


.80 


14.6 


.83 


9.7 


.12 


16.9 


6.0 


.33 


6.0 


.37 


4.4 


.07 


23.3 


4.8 


.48 


8.7 


.37 


4.3 


.13 


54.2 


35.6 


1.66 


30.2 


3,60 


42.4 


1.82 


102.2 



49 

From this analysis it appears how small a proportion of the price 
paid by the consumer goes to labor and how extravagant a propor- 
tion goes into the various margins of profit. It seems hardly be- 
lievable that the entire cost of manufacturing shoes for which the 
consumer pays |S.50 is only approximately S3.46. 

The labor items are relatively unimportant. In 1914 all the labor 
from the hide to the finished shoes absorbed less than one-sixth of 
the price paid by the consumer, while in 1917 this share of labor had 
decreased to one-ninth of the price. On the other hand, the profit 
items in 1914 absorbed nearly one-half the price paid by the con- 
sumer (nearly three times the total labor costs), while in 1917 the 
profit items absorbed approximately three-fifths of the total price 
(over five times the total labor costs) . 

Of the 13.50 increase in the price paid by the consumer between 
1914 and 1917, labor received an increase of 15 cents, equal to less 
than one-twentieth of the total price increase, while the profit items 
absorbed nearly four-fifths of the total increase, |2.7o, or over IS 
times the increase in the labor items. An increase of some 35 per 
cent in wages (i. e., between 1914 and 1917) was therefore respons- 
ible for an increase of only 15 cents per pair in the price of shoes. 
The total increase in the labor cost was thus less than 20 per cent 
of the 1914 figure, while the total profit margins showed the increase 
of over 120 per cent. 

In general, the only items in the entire cost of a pair shoes which 
increased 100 per cent or over betwen 1914 and 1917 were the profit 
items and the small item for administration expense (i. e., salaries 
of officials). The retailers' margin is by far the largest, absorbing 
over one-third of the price, but it does not show so large an increase 
as do the packers' and tanners' profits. As the largest tanneries are 
indirectly a part of the Big Packers' varied interests, it can be said 
without danger of contradiction that their profiteering is very largely 
responsible for the high prices of shoes. The retailer is also in 
large measure responsible, for his 102 per cent increase in margin 
means an increase of |1.82 per pair, and in this case the amount is 
more significant than the percentage figure. The manufacturer 
appears to have increased his profits less than any of the other 
factors, although it should be mentioned that he took his highest 
profits in 1916, during which year they amounted to twice the 
amount which he took in 1914. 



50 

Costs and Prices, 1918-1919. 

It is impossible to carry the complete analysis of price down to 
the years 1918 and 1919. But there is enough material in the 
Federal Trade Commission report to make an estimate possible. In 
fact, costs are itemized in that report as far back as the manufac- 
turing process. Between 1914 and 1918 a typical pair of shoes in- 
creased in price from |5.00 to |8.00. Of this increase of |3.00, 
an increase of some 25 per cent in the wages paid to labor in the 
shoe industry accounted for but 17^ cents per pair in labor costs, 
as contrasted with |1.25 additional profit taken by the retailer. 
The^ wholesaler in this instance increased his profit by 21 cents a 
pair, and the manufacturer increased his profit by 7I/2 cents a pair. 
The balance was due to the increased cost of leather discussed above. 
In the case of another standard shoe, the price of which advanced 
from |4.00 to |6.50, the increase in wages increased the cost of pro- 
ducing the shoes by only 2.8 cents per pair, as contrasted with a 
total price increase of |2.50. These instances show how insignificant 
an item is labor cost in the problem of increased prices. Despite 
the 25 per cent increase in wage, labor cost constituted a smaller 
proportion of the price in 1918 than it did in 1914. 

Kecent Data Supplied by the New York World. 

In the New York World of Sunday, March 28, 1920, there is an 
interesting special article on the high cost of shoes. The table which 
follows is condensed from the article in question. In reading the 
table it should be remembered that there are other profits besides 
those taken by the manufacturer and the retailer. In other words, 
the entire cost shown includes the profits taken by the packer and 
the tanner. And the extraordinary price of upper stock shown for 
1919 should give us some clue as to the enormous profits which the 
producers of leather are able to make as a result of the scarcity. 

How Cost of Producing Men's Shoes Has Increased. 

1905. 1908. 1912. 1916. 1916. 1918. 1919. 

(March) (Dec.) (Aug.) 

$a» * d» a? a* a> 

«p ip tp «p tP tb 

Leather for uppers and sole .88 .89 1.03 1.294 1.803 2.52 5.007 

Other materials and supplies .701 .759 .7832 .9.33 1.132 1.413 1.457 

Labor 602 .602 .6144 .65 .71 .82 1.02 

Manufacturing expense 201 .2168 .2226 .232 .27 .32 .529 



Total $2,384 2,4678 2.6502 3.109 3.915 5.073 8.013 



51 

Thus the |14 shoe costs approximately |8 to produce. The manu- 
facturer gets 121/^ per cent profit on the production cost, or |1 a 
pair. The retailer pays $9 a pair. His gross profit, at 35 per cent 
of the retail selling price, is |o a pair. 

A few quotations from the article will serve as an intersting com- 
mentary upon the table. The writer agrees that all those engaged 
in the providing of shoes have made huge profits. He says : 

"Although the word 'profiteer' to a shoe man is like a red flag to 
a bull, the manufacturers, like the retailers, have been making enor- 
mous profits, compared with pre-war standards. In 1916 a manu- 
facturer made less than 40 cents on each pair of medium-priced 
shoes he produced; today he makes |1 — at the same percentage of 
profit." * * * 

And again, with regard to the retailer, he says : 

"It may not be just to compare the average retailer with conscious 
profiteering, but it is a fact that he is making profits which are 
enormous compared with pre-war standards. * * * 

"In justice to the retailers, it must be said that they do not con- 
sider this profit taking as profiteering, but merely as good business, 
regulated by the law of supply and demand." * * * 

"The following figures show how retail shoe dealers have trebled 
their gross profits in dollars and cents over pre-war days, even 
when they have not increased the percentage on which they base 
their profits : 

Cost of shoe Selling price Gross profit Gross profit 

to retailer. to public. percentage. in money. 

1920, $7.80 $12.00 35 $4.20 

1914... 2.60 4.00 35 1.40 

"The percentage of 35 per cent is selected because reputable re- 
tailers say it is a reasonable gross profit on medium-priced shoes. 
According to custom in the New York retail trade, it is figured on 
the retail selling price of the shoe. 

"From the gross profit in money, of course, the retailers' over- 
head expenses must be deducted. Even if his overhead had trebled, 
however, his net profit in dollars and cents would be enormous com- 
pared to pre-war standards." 

Profits As Shown in the Net Incomes of Shoe Manufacturing 

Companies. 

It has already been shown how the increase in the price of leather 
caused the annual net income of the tanneries to double. And, 
although the tanneries profiteered to a greater extent than the shoe 



52 

manufacturers, these latter corporations totk a large enough mar- 
gin during the war years to increase their annual net incomes by 
an average of between 60 and 70 per cent. The Federal Trade Com- 
mission includes in its report a tabulation of the rates of earnings 
on investments of 237 shoe manufacturers for the years 1914-1917, 
inclusive. The following summary table gives some indication of 
the tendency of profits to increase. 

Bates of Earnings on Investments of 237 Shoe Manufacturers, Grouped Accord- 
ing to Amount of Investment in 1914 to 1917, Inclusive. 

1914 1915 1916 1917 

Groups. Per cent. Per cent. Per cent. Per cent. 

Under $100,000—85 companies 12.8 14.6 31.5 26.5 

$100,000 to $250,000— 56 companies.. 16,7 15,8 25.2 22,5 

$250,000 to $1,000,000—74 companies. 15.5 15.2 26,6 25.0 

$1,000,000 to .$3,000,000— 14 companies 15,0 15,5 26.3 20.3 

Over $3,000,000—8 companies 14.7 14.6 25.4 26.3 

Average 15.1 15,0 26.1 24,7 

This merely indicates the fact that the general level of earnings 
for the shoe manufacturing industry advanced from approximately 
15 per cent to approximately 25 per cent during the war years. 
And, as the Federal Trade Commission points out : "Notwithstand- 
ing the wide difference in the earnings of the first two years of the 
period and the last two years, the rates in 1914 and 1915 were 
liberal/^ 

The above citations from the Federal Trade Commission's report 
may be supplemented by the financial statements of four large shoe 
manufacturing concerns, as reported in Moody's Manual. For the 
years 1912-1914 these four companies show average annual earnings 
of approximately |4,800,000. For the years 1916-1917 these in- 
creased to over 110,000,000. The corresponding rates of return on 
invested capital for these four great corporations more than doubled. 

As to the retailer, it is impossible to show in figures the extent 
of his profiteering. It can only be pointed out that, according to 
figures furnished by a large and representative group of retailers 
to the Federal Trade Commission, a generous allowance for expense 
of selling would be 23 per cent of the selling price of the shoes. It 
has already been shown that the margin taken by the retailer had 
risen from 35 to 42 per cent by 1917, and that it was still rising. 
There can be no question but that there has been great profiteering 
in the retail distribution of shoes. 

In general it appears that the shoe industry is no exception to 
the general rule that the war made possible higher margins all along 



53 

the line, that these profits have been absorbing a much larger pro- 
portion of the consumer's money than prior to the war, and that 
this fact has resulted in enormous corporation profits and in exorbi- 
tant prices. On the other hand, the fact stands out with great 
clarity, that labor cost is a small and decreasing percentage of the 
retail price, and that a very considerable per cent increase may be 
given to labor without appreciably increasing the cost of the goods 
to the consumer. 



54 

PKOFITEERING IN THE TEXTILE INDUSTRY. 

From figures at hand it would appear that the textile industry 
is no exception to the general rule of profiteering. Here again, 
from year to year, a greater and greater proportion of the price paid 
by the consumer for the goods he buys is going into manufacturing 
and retail profits, leaving a constantly decreasing proportion as 
wages to labor. As textile products are an item in every family 
budget, the fact that of the high prices prevalent today approxi- 
mately 50 per cent is absorbed in profits is of immense significance. 

How THE Price of Cotton Cloth is Divided. 

Statistical material covering costs in the textile industry is 
rather scant. But enough is available in Government reports to 
indicate the general tendency. For purposes of illustration two 
standard cotton cloths are chosen, blue denim, which is in general 
use for overalls, and gray sheeting, which has a multitude of uses, 
bleached and unbleached. 

For the purpose of studying the division of the price paid by 
the consumer for these goods it is possible to compare the pre-war 
year 1910 with the post-war year 1919. For these two years the 
division of the price paid for blue denim is shown below : 

, 1910 ^ , 1919 ^ Per cent 

Cost per Per cent Cost per Per cent increase 

yard in of retail yard in of retail 1919 over 

Items cents price cents price 1910 

Material 7.32 38.53 19.48 38.96 166 

Labor 1.22 6.42 2.33 4.70 92.6 

Mill expense 1.69 8.89 2.10 4.20 24 

Selling expense 51 2.68 1.20 2.40 135 

Mill profit 1.76 9.26 12.37 24.74 602 

Retail margin 6.50 34.21 12.50 25.00 92 

Retail price 19.00 lOO.OO 50.00 100.00 

In these figures it appears that in 1910 labor engaged in making 
up the raw material into finished product received about 6% per 
cent of the retail price while the mill owner received 9^ per cent 
and the retailer 34 per cent. Although in fairness we must deduct 
from the retailer's margin something for his running expenses, this 
margin of six and one-half cents on a 19-cent article is exorbitant. 
Evidently in 1910 the retailer was the chief profiteer. 

In 1919 the price paid by the consumer has risen from 19 cents to 
50 cents per yard, an increase of 31 cents. Of this increase 1.13 
cents went to labor, being an increase of about 93 per cent ; 6 cents 
went to the retailer, the percentage increase being 92 per cent, while 
the manufacturer increased his profit by 10.61 cents, an increase of 
602 per cent. This means that the profit of the manufacturer was 



55 

approximately seven times as large in 1919 as it was in 1910. In 
1919 the amount retained by the manufacturer and the retailer 
amounted to approximately 50 per cent of the price paid by the 
consumer, while labor's share had shrunk from 6.42 per cent to only 
4.70 per cent of the total. The fact cannot be over-emphasized that 
under present conditions the consumer is forced to pay approxi- 
mately twice what it costs to produce and distribute the goods used. 
The following table for gray sheeting merely confirms this fact, 
although in this case the increase in the retailer's per cent of profit 
was much greater than in the preceding example : 

, 1910 ^ , 1919 ^ Percent 

Cost per Per cent Cost per Per cent increase 

yard in of retail yard in of retail 1919 over 

Items cents price cents price 1910 

Material 4.10 49.2 10.13 35.0 147 

Labor 96 11.5 2.07 7.1 115 

Mill expense 88 10.6 1.85 6.4 110 

Selling expense 30 3.6 .70 2.4 133 

Mill profit 76 9.1 6.75 23.3 748 

Retail margin 1.33 15.9 7.50 25.8 464 

Retail price 8.33 100.0 29.00 100.0 

In 1910 profits absorbed 25 per cent of the consumer's money ; in 
1919 profits absorbed nearly 50 per cent. In 1910 labor received 
11% per cent of the selling price, in 1919 only 7 per cent. In 1910 
the manufacturer received 9 per cent of the selling price, in 1919 
his profits had increased to 23 per cent. During the same period the 
retailer's margin had increased from 16 per cent to over 25 per cent 
of the retail price. Labor costs had increased 115 per cent, the 
retailer's margin 464 per cent, and the manufacturer's profits by the 
enormous figure of 748 per cent. 

Comparing the figure for the two textile products in 1919, it 
appears that there is a general parallel, the manufacturer and the 
retailer each taking approximately one-quarter of the price, and in 
both cases the fact stands out that the consumer pays approximately 
twice the net cost of producing and distributing the goods. 

If the mill operator and the retailer had been content to get the 
same per cent increase as went to labor, the price of sheeting could 
have been reduced 34 per cent, or 9.85 cents per yard, while the sav- 
ing to the consumer in blue denim (overalls, etc.) would have been 18 
per cent, or 9 cents per yard. 

The manufacturer of gray sheeting could have given labor an 
increase of 100 per cent over the wages of 1919, have reduced the 
price to the consumer by 11 per cent, and could have still received 
profits three times those received in 1910. Instead he took profits 
over eight times as large. 



56 

The manufacturer of blue denim, had he been satisfied with profits 
only three times as large as those in 1910, could have given labor a 
similar 100 per cent increase and could have also reduced the price 
to the consumer by 10 per cent. Instead he took profits seven times 
as large. 

Profits as Shown in the Published Reports op Textile 

Companies. 

Such profits should be reflected in the net incomes shown in the 
published reports of the large textile companies. Here again the 
material at hand is not so full as one could wish. But such returns 
as appear in Moody's and Poor's Manuals enable us to substantiate 
the above conclusions for eight large representative cotton and wool 
manufacturing companies. Roughly speaking the net income of 
these companies for the war years 1916-1918 was five times as large 
as the corresponding total for the pre-war years 1912-1914. 

The capitalization of these companies ranges all the way from 
1600,000 to 160,000,000, the capitalization of the great American 
Woolen Company. This corporation increased its net annual income 
from 11,600,000 in the pre-war years to nearly |9,000,000 in the years 
1916-1918, being an increase in per cent return on capital stock from 
2.7 to 14.9. In 1917 its earnings reached the total of |13,883,155, a 
return of approximately 23 per cent on the capital stock. The aver- 
age net income for the group of eight corporations increased from 
13,734,215 in the years 1912-1914 to |22,630,562 for the years 1916- 
1918, meaning an increase in the return on capital stock from 3.9 
per cent to 22.6 per cent. 

Here, as so frequently in other industries, the tendency for con- 
cerns with small capitalization to earn larger percentages on invest- 
ment is apparent. This leads to the suspicion that the larger cor- 
porations have been over-capitalized and that the percentage of net 
income to real investment is higher than it appears. Two of the 
companies show net profits for 1918 equal to 93 and 128 per cent on 
their respective capitalizations. 

Only in the case of the Amoskeag Manufacturing Company are 
there any figures available as to amount of goods produced. Even 
in this case the information is scant enough, but it enables us to 
estimate that the profits in relation to the amount of goods sold were 
vastly greater in 1918 than they were in 1914. 

In general the outstanding fact is that in recent years the manu- 
facturer's and retailer's margins of profits have been absorbing a 



much larger portion of the consumer's money than in earlier year*^ 
that today the amount absorbed by these two elements amounts to 
approximately one-half the price paid by the consumer for the goods, 
and that this is reflected in profits which, for the manufacturer at 
least, are many times those received in pre-war years. This estab- 
lishes a very close relationship between profiteering and high prices. 



58 

PROFITEERING IN THE CLOTHING AND DRY GOODS 

INDUSTRY. 

The clothing and dry goods industry is so highly diversified in 
product that it is next to impossible to analyze the items which go 
to make up the price which the consumer pays for goods. Hence 
it is also impossible to ascertain with any accuracy how much of 
that price represents profit. However, from the published reports 
of five concerns producing clothing and dry goods it appears that, 
during the war, the industry made large profits, but not such enor- 
mous profits as were made in many other industries. Thus the net 
earnings of these five concerns for the war years 1916-1918 were 
slightly less than double those of the years 1912-1914, averaging 
19,341,947, or 12.5 per cent on their total capital stock, in 1916-1918, 
as contrasted with |5,180,083, or 6.7 per cent on capital stock, in 
the years 1912-1914. 

In general the dry goods manufacturers show a greater propor- 
tional increase than do the clothing corporations. Thus the Amer- 
ican Thread Company increased its profits from an average of 
1973,101 in the pre-war period to an average of |2,439,130, in the 
war period, meaning an increase in the rate on investment from 
9.5 to 23.7 per cent. In ether words, the profits of this concern were 
more than twice as large in the war years as in the pre-war period. 
In 1918 this company showed a return on capital stock of no less 
than 41.1 per cent. The Ely Walker Dry Goods Company shows 
an even greater proportional increase — from |357,803 in the 
first period to |1,067,971 in the second period, meaning an increase 
in the rate of return from 7.9 per cent to 23.7 per cent. This con- 
cern very nearly tripled its pre-war profits. 

Cluett, Peabody & Company show profits for the war period 
approximately half again as large as those in the pre-war period, 
having taken in the years 1916-1918 |2,404,411 in contrast to an 
average profit of |1,731,889 during the pre-war years. The rate on 
capital stock rose from 6.7 per cent to 9.6 per cent. Hart, Schaffner 
& Marx doubled their profits between the two periods, their average 
profits for the war period being |1,625,593, as contrasted with |859,- 
219 for the pre-war period, an increase from 4.4 per cent to 8.8 per 
cent. The National Cloak & Suit Company shows an increase in its 
rate of return on capital from 7.3 per cent in the pre-war period to 
10.9 per cent in the war period, a very meager increase compared to 
the experience of most corporations. 



59 

In general, it is impossible to say definitely that there existed any 
great amount of war profiteering in this branch of industry, although 
the fact that regular men's wear was considerably less in demand 
owing to the large number of men in the military service would seem 
to indicate that higher annual profits meant the taking of a con- 
siderable larger margin on each article. 



60 

PROFITEERING IN THE BITUMINOUS COAL INDUSTRY. 

It is common knowledge that the price of coal to the consumer in- 
creased materially during the period from 1916 to 1918. Experience 
taught everyone that fact. It is equally a matter of common knowl- 
edge that when explanations have been sought the first answer of the 
coal producers has been invariably "increased labor costs." This 
explanation has been given wide publicity by the press and has been 
generally accepted by the public. 

The figures of the Federal Trade Commission brand that ex- 
planation as utterly false. Although the wage increases allowed to 
the bituminous coal miners as compensation for the increased cost 
of living wore accompanied by an advance in coal prices, the added 
cost to the consumer was greatly in excess of the additional produc- 
tion costs involved by such increases in rates of pay. The causes of 
such increased prices are found not in the added labor costs, but in 
the excessive profits of the coal operators and the wholesale and 
retail coal dealers. 

An examination of official data bearing on the production and dis- 
tribution of coal shows in general that the increase in the retail 
price of bituminous coal since 1916 has been from three to four times 
as great as the increase in labor costs during the same period, and 
that the distributive share of the operator in the proceeds of the coal 
industry has increased from 75 per cent to 400 per cent, while the 
distributive share of labor has not increased to anything like the 
same extent. The following table will serve to give a general idea 
of the division of each dollar paid by the consumer for bituminous 
coal in the years 1916-1918 : 

Southwestern Field of Central Field of 

Pennsylvania. Pennsylvania. 

Items. 1916 1917. 1918. 1916. 1917. 1918. 

Labor $0.15 $0.15 $0.17 $0.16 $0.19 $022 

Supplies 02 .08 .03 .02 .04 .04 

Expenses 04 .04 .04 .05 .05 .04 

Operator's margin .02 .16 .08 .01 .13 .10 

Transportation 32 .30 .29 .32 .30 .29 

Margin for ^-etail distribu- 
tion 45 .32 .39 .44 .29 .31 

The outstanding feature of this table is the great increase in the 
proportion of each one of the consumer's dollars taken by the coal 
operator. In the Southwestern field the operator's profit increased 
from $0.02 in 1916 to $0.16 in 1917, or eight times as much. With 
government regulation in 1918 the operator's share of the consumer's 
dollar was four times as large as it was in 1916. In the Central field 



61 

the proportionate increase is even more striking, although the op- 
erator's profit only went to $0.13 in 1917. In this connection it 
must be recollected that 1916 was not a pre-war year, but a year in 
which the majority of corporations made their largest profits. Un- 
fortunately, cost material for 1914 and the preceding years is not at 
hand, so that it is impossible to make really significant comparisons. 

If we consider the price charged by the operator for the coal, the 
contrast is even more significant. Labor's share of each dollar re- 
ceived by the operator in the Southwestern field actually decreased 
by 30 per cent, while the operator's profit increased by more than 
400 per cent. This was for the year 1917. The year 1918 showed a 
further decrease in the proportion of the dollar received by labor 
while the enormously increased return of the operator still persisted. 
The same facts are apparent in the Central field. 

As a matter of fact, while the labor required to produce a ton of 
bituminous coal received an increase of 54 cents, the operator's price 
was increased by |1.13, and the retail price by |2.19, or more than 
four times the increase in the cost of labor necessary to produce the 
coal. Less than one-fourth of the increased price of coal paid by the 
consumer was taken by labor in the bituminous industry. In 1917 
the operators in the Central field could have sold their coal for 20 
per cent less than they did and still have retained twice as much out 
of each dollar as they retained in 1916 ; in 1918 they could have re- 
duced the price 13 per cent and still have had a share twice as large 
as that which they received in 1916. 

This increase in the margin of the operators becomes even more 
significant when we consider the actual amount of margin w^hich the 
operator received per ton of bituminous coal sold. In the South- 
western field the operators received in 1916 an average profit of 17 
cents per ton. In 1917 this margin of profit had jumped to |1.12 per 
ton, and in 1918, despite government regulation, it still stood at 60 
cents per ton. In the Central field profits rose from 8 cents per ton 
in 1916 to 92 cents per ton in 1917. Government regulation in 1918 
only reduced them to 78 cents. These figures are particularly inter- 
esting because under pre-war conditions a profit of 8 cents per ton 
was considered as normal and acceptable, while a profit of 10 cents 
was regarded as extremely gratifying. If the operators had been 
satisfied with a profit of 25 cents per ton, this would have been three 
times the normal pre-war figure. Such facts as these serve to show 
more clearly how out of all proportion were the profits actually 
taken. 



62 

In other words, to account for the unwarranted rise in the prices 
which consumers were forced to pay for coal it is necessary to study 
the profits of the coal operators. Such increases as labor received to 
meet the rising cost of living amounted to less than one-quarter of 
the actual increase in prices. But the operator enjoyed a share of 
the consumer's dollar never before dreamed of. 

Profiteering As Shown in Income Tax Returns. 

Incontrovertible evidence of the enormous earnings of bituminous 
coal operators and the most complete exhibit of their profits is to be 
found in their tax returns to the United States Treasury Depart- 
ment. These were sent to the United States Senate in response to 
Senate Resolution No. 253. These figures show that at least 392 coal 
operators throughout the United States, earned profits in excess of 
15 per cent in 1917, their maximum earnings on capital stock rang- 
ing, in 10 instances, as high as 1,000 per cent. Moreover, 334 of these 
companies, or over 85 per cent, showed earnings, after the deduction 
of taxes, of over 25 per cent; 218, or over 55 per cent of them, showed 
earnings of over 50 per cent on capital stock, while 118, or more than 
30 per cent, showed earnings of over 100 per cent. The fact that 
these companies earned such enormous percentages is but a reflection 
of the high margins already described. The significance of these re- 
turns can be shown most clearly in terms of totals as indicated in 
the table below : 

1917. 1916. 

Capital Stock .$174,698,338 $167,109,385 

Net Income 78,695,577 25,238,337 

Net Income, tax deducted 55,048,167 

Per cent, of net income, tax deducted, to capital 

stock 31.51% 15.11% 

The outstanding fact is that according to attested income tax re- 
turns made to the United States Bureau of Internal Revenue these 
392 bituminous coal mining corporations made profits in 1917 more 
than double those earned in 1916. The actual profits were three 
times as large as those in 1916, but the excess profits tax served to 
cut them to a certain extent. The per cent earned on capital stock 
is also more than double that earned in 1916. 

In order to be able to compare the earnings of the important coal 
companies with the pre-war years 1912 to 1914 we must turn to the 
financial manuals of Moody and Poor. These publish the annual 
reports of 32 bituminous coal mining companies, showing capitaliza- 
tions, earnings, production, net income, etc. For 17 of these com- 



63 

panies full returns are available for the period 1912 to 1918, inclu- 
sive. Almost without exception the incomes of these companies for 
1918 were more than double their incomes in pre-war years. Before 
summarizing this information a few concrete instances will serve to 
make the situation apparent. 

The PocaJwntas Fuel Company, a corporation with approximately 
17,000,000 of capital stock, earned an average of |82S,000 during the 
years 1912-1914. In 1918 the same company, without change in its 
capitalization, earned |3,016,580, or more than three and one-half 
times its pre-war average. As a matter of fact, in its most prosper- 
ous year, 1917, it earned |4,354,514, more than five times the pre- 
war average, and equal to 60 per cent on its capital stock. Earn- 
ings w^hich before the war were averaging 11% per cent jumped to 
twice that figure in 1916, and to more than five times that figure in 
1917. The concern was still earning 42 per cent in 1918 despite gov- 
ernment regulation. Data as to income per ton exists only for the 
year 1917, when it reached the extraordinary figure of |1.17 per ton. 
This means that in 1917, after all expenses were paid and all excess 
profits taxes deducted, a company producing over 3,500,000 tons kept 
for itself |1.17 profit for every ton of coal bought by a consumer. 

The Pittsburgh Coal Company showed average earnings for the 
years 1912 to 1914 of approximately $2,000,000. In 1918 this com- 
pany made a clear profit of |7,000,000, while in 1917 the net income 
stood at 114,076,852, or seven times the average for the pre-war 
years. This means that an average percentage of 3.2 for pre-war 
years gave place to earnings of over 20 per cent in 1917 and of over 
10 per cent in 1918. These figures appear conservative compared 
with some of the companies, unless it is realized that one-half of 
the stock of this corporation is water, that it represents no real 
investment. In the light of this fact the true earnings would appear 
as 6.4 per cent for pre-war years, 40 per cent for 1917 and 20 per 
cent for 1918. In the case of this company tonnage figures for the 
whole period are available. Average earnings of 9.8 cents per ton 
in pre-war years had risen in 1916 to 17 cents per ton, and in 1917 
to the enormous profit of 76% cents per ton. In 1918 the figure 
was still 42 cents, over four times the pre-war figure. 

The Consolidated Coal Corporation with |32,000,000 worth of 
capital stock earned an average of |2,300,000 for the pre-war years. 
By 1916 the earnings had already nearly doubled, and in 1917 the 
corporation earned over |8,500,000., or more than three times the 
pre-war earnings. In 1918 the earnings were |5,000,000. The pre- 
war percentage of earnings to capital stock was 9.3 per cent. In 



64 

1917 this had risen to over 31 per cent, and in 1918 it was still 16 
per cent, although the capitalization had been materially increased. 
This great increase in profits is clearly shown in the rise of the 
income per ton. In pre-war years it averaged 24.3 cents per ton. In 
1916 this profit was half again as large, while in 1917 it stood at 
89.3 cents per ton, or nearly four times the pre-war average. In 1918 
it was still 62.2 cents per ton, or more than two and one-half times 
the earlier rate. 

The By-Products Coke Corporation, with |3,000,000 of capital 
stock, increased its earnings from an average of |313,147 in pre-war 
years to |1,767,128 in 1916 ; in other words, to more than four times 
the former earnings. The year 1917 showed earnings of |1,490,479, 
and those of 1918 were |960,000, still three times the pre-war average. 
The percentage on capital stock rose from 10 per cent in 1912-1914 
to 33 per cent in 1916. Between 1916 and 1917 the earnings per ton 
doubled. 

The Carnegie Coal Company, with capital stock of par value 
1694,850, increased its earnings from an average of |170,913 before 
the war to |1,058,765 in 1917, meaning a rise in per cent earned on 
capital stock from 25.6 per cent to 211.7 per cent. In 1918 it was 
still earning 172.5 per cent. 

The following table shows in summary form the earnings of the 
17 companies for which full returns are available : 



Average 
net income. 

1912 $13,545,001 

1913 16,236,846 

1914 12,955,005 

1915 13,470,341 

1916 20,445,604 

1917 47,855,675 

1918 32,773,626 

No long study of this table is necessary to discover one very im- 
portant cause of high prices in bituminous coal. The underlying 
fact is written in the sudden jump in net income centering around 
the year 1916, a jump which is evident from whatever point of view 
we examine earnings. By 1917 the income in dollars was more than 
three times as large as the average for pre-war years, the percentage 
earned on capital w^as more than three times as large as were pre- 
war percentages, and the profits on each ton of coal sold to the con- 
suming public were three times as high. In other words, the fact 



erage percent- 


Net 


age earned 


income 


on capital. 


per ton. 


Per cent. 


Cents. 


7.9 


21.6 


9.5 


21.7 


7.5 


20.4 


7.8 


20.3 


11.8 


29.2 


27.2 


66.3 


17.2 


48.3 



65 

that the operator's margin of profit showed a larger proportional 
increase than any other item in the cost of coal to the consumer 
appears on the one hand in high prices and on the other in high 
profits. 

The small table above is a complete index of the extent of profiteer- 
ing in the industry. The companies are not selected. They are all 
the companies that have published financial reports in the financial 
manuals for the full period. Adding the other companies whose 
reports do not appear for the entire period does not alter the gen- 
eral tendency shown. 

In order to show the real significance of this profiteering it may 
be well to estimate the total net earnings of the coal operators of 
the entire country for the war years 1916-1918, inclusive. There is 
reason to believe that the net income per ton, as above shown, is 
approximately that for the entire production. With an average 
annual production for the three years, 1916-1918, of nearly 600,000,- 
000 tons and average earnings per ton for the three years of approxi- 
mately 48.3 cents, it is apparent that the coal operators obtained 
in clear profit for these years over |800,000,000. The year 1919 
undoubtedly raised this total to over |1,000,000,000, approximately 
|10 per individual for the entire population of the country. In other 
words, the profiteering of the bituminous coal operators meant an 
indirect tax upon the people of the country, whether they burned 
the coal themselves or not, of approximately |50 for each family of 
five. This accounts for an important element in the hi^ cost of 
living. . 



m 



PROFITEERING IN ANTHRACITE COAL. 

There are seven anthracite coal companies whose financial reports 
are published in the standard financial manuals. All these cor- 
porations produce coal, but only two of them, the Philadelphia and 
Reading Coal and Iron Company and the Temple Coal Company, 
also market the coal which they produce. The other five corpora- 
tions market their entire product through separately incorporated 
selling agencies. This has a very important bearing upon the price 
of anthracite. 

The stock of these separate selling agencies is entirely owned by 
the railroad coal-producing companies, and detailed reports of their 
profits are- seldom reported to the public. This method of maintain- 
ing separate producing and selling departments makes it possible 
effectually to conceal the actual profits realized. For the producing 
company sells coal to the sales department at such a price as to 
maintain only a fair margin, the bulk of the profit being taken by 
the sales company. 

Thus these figures do not get into the hands of any curious con- 
sumer who may wish to know why he pays |14.50 for a ton of coal 
that it costs only |4.50 to produce. By this method also the opera- 
tors are enabled to make two profits on each ton of coal, one for the 
producing company and one for the selling company, the capital 
stock, of which represents absolutely no investment, usually being 
a stock dividend by the parent company. 

This has made possible exorbitant profits even in pre-war years. 
This has made the price of anthracite always high. In fact, the 
profits were so high in pre-war years that the actual rise in war- 
time does not appear proportionally so great. 

For What Does the Consumer's Money Go? 

Because of the selling device described above it is more difficult 
to show accurately the division of the purchase price with a view 
to determining the actual profit margin of the operators. However, 
when it is realized that the selling companies are but another aspect 
of the operating corporations, it becomes possible to think of the 
wholesale price as the actual sales realization of the operating cor- 
poration. The item sales realization then becomes merely an intra- 
corporatiou bookkeeping entry. Proceeding on this basis it is possi- 



37 

bl€ to construct the following table as showing roughly the division 
of the consumer's money. 

1914 1918 December 191S 

Costs — 

I^bor $1.59 $2.62 $2.97 

Other, includes loading .69 1.20 1.25 

Transportation to N. Y. 1.80 2.12 2.30 

Total costs $4.08 $5.94 $6.52 

Margins — 

Operator 39 .39 .89 

Sales corporation 93 1.08 1.18 

Retail dealer 2.14 2.55 3.23 

Total margins 3.40 4.02 4. SO 

Retail price to purc-h"r 7.54 O.Oi; 11.;Jl> 

In the first place this table indicates clearly how^ the operating 
corporations show a steady conservative profit, the 39 cents margin 
persisting throughout the series of years shown, meanwhile, through 
the sales corporation, making an exorbitant profit. In lOlS' the real 
profits of the producing corporations totaled approximately |1.50 
upon a product whose production costs only totaled |3.82. It is 
this margin w^hich is the basis for the high profits made by the 
anthracite coal corporations. Such a margin on the 90,000,000 tons 
produced would mean a profit in a single year of approximately 
1135,000,000. 

In each period shown the total margins taken totaled more than 
the entire cost of producing and loading the coal. In 1914 the total 
margins averaged over half again as much as the production cost, 
13.46, as against $2.28 per ton. In 1918 the total margin, |4.02, is 
still 20 cents above the production cost, |3.82. 

For the retailer it must be said that a considerable portion of his 
large margin must necessarily go to cover his deliver}^ expenses. 
Even at that he cannot be absolved from profiteering. But the op- 
erating corporations are far more guilty. In 1914 the profits of these 
corporations equalled more than half the entire cost of producing 
the coal, while in 1918 they were still approximately three-eighths of 
the cost of labor increased |1.38 per ton, while the corresponding in- 
bill of the nation is pointed out above, an addition of over |100,- 
000,000. 

It should be pointed out that between 1914 and 1918 (December) 
the cost of labor increased |1.38 per ton, while the corresponding in- 
crease in the wholesale price was |2.69, approximately twice the in- 



68 

crease in labor cost. During the same period the increase in the 
retail price was |4.28, over three times the increase in labor cost. 

In general, the interesting fact is that the consumer was paying 
in December, 1918, |11.82 for a product the production of which cost 
but |4.22^ and the production and distribution of which cost very 
little over |7.00. 

War Profits of a Corporation Marketing Its Own Product. 

The income account of the Philadelphia & Beading Company 
may be taken as indicative of the actual increase in profit during the 
war years, for it is the only concern publishing accounts for the 
entire period, which markets its own coal. It is interesting to ob- 
serve that this company, which had no such selling device for con- 
cealing profits as that described above, was able to make a much 
smaller amount on each ton than did the other companies prior to 
the war, but that the war furnished it an opportunity to jump its 
profits into their class. The following table shows the earnings of 
the company for the years 1912-1918 : 

Per cent, on Net 

capital stock. income 

Year. Net income. per ton. 

1912 $171,576 2.1 $0,017 

1913 1,139,592 14.2 0.106 

1914. 715,390 8.9 0.082 

1915 60,572 0.8 0.007 

1916 2,463,790 30.8 0.246 

1917 5,436,633 68.0 0.472 

1918 4,150,162 51.9 0.359 

The total tonnage produced by this company was only approxi- 
mately 11 per cent greater for the war period than it was for the 
pre-war period, while the profit realized increased nearly 500 per 
cent. This finds its expression in an increase in the profit per ton of 
435 per cent. 

The only other company reporting which markets its own product 
is the Temple Coal Company, and while the income of this corpora- 
tion for 1918 was unobtainable, it is apparent that it realized a tre- 
mendous increase in profits during the war, its income in 1917 being 
nearly twice as great as the average income for the pre-war years. 

How Excessive Profits Are Concealed. 

The income figures discussed are the net profits available for pay- 
ing dividends upon capital stock, after the deduction of every con- 
ceivable charge for depreciation, depletion, sinking funds, and Fed- 



69 

eral income and excess profit taxes, as well as interest on indebted- 
ness, local taxes and other items. 

The amounts deducted from gross income under the heading of 
depletion are almost always excessive and are the favorite form of 
"smoke screen" used by these corporations to conceal their profits. 
These charges are usually based upon the value of coal property, 
and when the accumulated ''depletion reserve'^ approaches the total 
value of the coal land, a revaluation at a greatly advanced figure 
takes place. 

The Board of Directors of the Lehigh Coal & Navigation Com- 
pany reported to its stockholders in 1912 that a depletion charge 
of 5 cents per ton would pay for all of its coal land, the unworked 
as well as the exploited, in 20 years. The Federal Trade Commission 
in its report on anthracite coal production costs, 1919, shows that 
the average charge for depletion made by eight railroad coal com- 
panies and eleven independent operators amounted to 17.4 cents 
per ton. Thus a profit of over 12 cents per ton is tucked away in 
depletion reserve and made the basis of a further issue of stocks or 
other securities in later years. This little hidden profit means 
110,000^000 per year, equivalent to the average annual income for 
all the companies reported in the financial manuals combined for 
the pre-war years. It would mean a hidden profit to these companies 
themselves of |5,000,000 per year or one-haK their pre-war profits. 
In the future this will be given capital value which will enable the 
corporations to increase their profits without seeming to increase the 
rate of return upon capital stock. 

Why the Coal Sales Companies Are Profitable. 

Since 1911 the Lehigh Valley Coal Sales Company has been the 
selling agent for all the coal produced by the Lehigh Valley Coal 
Company, which is, in its turn, owned by the Lehigh Valley Railroad 
Company. The stock of the sales company was sold to the stock- 
holders of the railroad company, the railroad declaring a special 
dividend which paid for the stock. In other words, the stockholders 
paid nothing for the stock, but received it as a gift out of the excess 
profits of the railroad. The sales company has earned huge profits, 
having declared two 25 per cent stock dividends, and paid since 
1917 4 per cent quarterly not to mention a 30 per cent special divi- 
dend with the option of buying more stock and a 10 per cent dividend 
in Liberty Bonds. 

The coal sales department of the Delaware, Lackawanna and 



70 

Western Railroad Company was organized along the same lines, 
the entire stock being paid for by a special 50 per cent dividend from 
the railroad. Withim three years its net earnings had equalled the 
entire value of the capital stock, which had cost the stockholders 
nothing. 

Such facts as these serve to show not only what quantities of the 
country's money is going to pay high profits to people who never 
invested a single cent, but also the way in which excessive railroad 
earnings were diverted into profit making enterprises of a different 
sort 

Over-Capitalization and Future Profits. 

For a complete understanding of the extent of profiteering in the 
anthracite industry one other fact in the financial side of the com- 
panies should be mentioned. The Philadelphia and Reading Coal and 
Iron Company with |8,000,000 capital stock produced nearly three 
times as much coal each year as did the Lehigh Coal and Navigation 
Company with three times as much capital stock, .^20, .500, 000 being 
the capitalization of the latter company. This clearly indicates that 
the Lehigh Company is either grossly over-capitalized or ^hat it is 
holding an immense area of anthracite coal land out of use for future 
exploitation. In either case the actual reported rate of return upon 
investment is no indication of the actual amount which the public 
is paying for the real capital actually being employed. In the first 
case profits are being realized upon a heavily watered capitalization. 
In the other case the public is being charged for the use of property 
which is being reserved for the making of future profits. 

Pre-war Earnings Contrasted with War Profits. 

The following table shows the profits of four of the leading anthra- 
cite companies from several different angles: 

Per cent earned on 
Average annual net income capital stock Earnings per ton 

Company 1912-14 1916-18 1912-14 1916-18 1912-14 1916-18 

Lehigh Coal and 

Navigation Co.... $2,381,447 
Lehigh and Wilkes- 

Barre Coal Co... 3,236.507 
Lehigh Valley Co.. 630,122 
Philadelphia and 

Reading Co 675,519 



$2,985,279 


8.9 


10.9 


$0,584 


$0,639 


3,732.216 
2,401,575 


35.1 
32.1 


40.5 
122.2 


0.604 
0.073 


0.692 
0.260 


4.016.862 


8.4 


43.6 


0.068 


0.364 



Total $6,923,595 $13,135,932 15.1 27.4 0.332 0.489 

The income of these four companies for the war years was approxi- 
mately twice that earned by them during the pre-war years, both in 



71 

dollars and in per cent on capital stock. The most profitable year 
was 1917 with a combined net income for the four companies, after 
the deduction of all taxes^ of $16,()62,3S7, more than twice the pre- 
war income, or an average percentage on capital stock of 34.2. In 
the case of at least two of the companies the pre-war earnings were 
exorbitant, and, as already pointed out, the Lehigh Coal and Navi- 
gation Company earnings should probably be interpreted as being 
two or three times the given rate, because of th probable over- 
capitalization of the Company. This is borne out by the fact that 
its earnings per ton were high before the war. 

The income tax return of six smaller companies, published at the 
request of the United States Senate, show the same general tend- 
encies. The net income of these six concerns in 1916 was $572,470, 
equal to a return of over 57 per cent of their capital stock. In 1917 
the net earnings, after the deduction of income and excess profits 
taxes, w^ere nearly twice as large, |1,081,550, equal to a return of 
94.5 per cent on the capital stock. It is interesting to note that, 
although requested to furnish data for all companies earning over 
15 per cent in 1917, the Treasury Department did not include in the 
statement any of the great companies mentioned above as earning 
over that rate. 



72 

PEOFITEERING IN PETROLEUM. 

The fact that oil regions are more and more becoming a determin- 
ing element in international policy is merely an indication of the 
rapid rise of this mineral product as one of the essentials of civiliza- 
tion. Profiteering in this industry is coming to bear as heavily upon 
the consumer as profiteering in coal. Between 1912 and 1918 22 
large oil corporations whose reports are published in the financial 
manuals of Moody and Poor, reported net profits totaling over 
|8Q0,000,000. Nor do these corporations represent by any means the 
entire industry. Many of the principal Standard Oil stocks are not 
found in the manuals. In fact there are over a score of such cor- 
porations with capital stock worth hundreds of millions of dollars 
which do not appear in the list considered. This means that the 
total profits mentioned above are far short of the actual cost to the 
country of oil profits. 

Of this 1800,000,000 almost two-thirds was earned during the 
war years 1916-1918, while only one-fourth was earned during the 
pre-war years 1912-1914. In other words, excessive as were the pre- 
war oil profits, the war enabled the corporations to more than double 
their profits. 

The average annual net income of these corporations for the years 
1912-1914 was approximately |74,000,000, while for the years 1916- 
1918 it averaged $178,000,000 . The corresponding percentages 
earned on capital stock were 18.7 and 39.8. This war-time average 
rate of profits, 39.8 per cent, meant that in less than the three years 
mentioned the profits equalled the entire original value of the in- 
vestment. In the years 1916 and 1917 the companies earned over 
40 per cent on the original investment. 

Some of the earnings seem almost unbelievable. Thus the Stand- 
ard Oil Company of Indiana took from the country during the pre- 
war years profits which averaged more than 1,000 per cent on the 
original capital stock, which represents the whole real investment. 
In those years the profits averaged over |10,000,000 per year. The 
percentage of profits to capital stock for the years 1916-1918 was 
more than two and a half times as great, the earnings being approxi- 
mately 126,000,000. Of course, in the published reports it does not 
appear that this corponation earned so enormous a per cent on its 
capital stock. For in 1912 the capitalization was increased from 
11,000,000 to 130,000,000 by a 2,900 per cent stock dividend. The re- 
turn on investment, then, appears to have risen from approximately 
33 per cent to approximately 85 per cent. An increase in profits 
which is significant enough, for it means that in 1916 the corpora- 



73 

tion took profits equal to the entire value of the capital stock which 
has been increased to 30 times the value of the original investment. 
In other words, 1916 was a marvellous year to the original stock- 
holders, for they received profits in a single year equal to 30 times 
what they had actually put into the business. Such facts suggest an 
explanation of the present prices of fuel oil. 

The Solar Kefining Company offers another instance of greatly in- 
creased profits. Its pre-war earnings averaged 68 per cent, while 
its earnings for the years 1916-1918 averaged 281 per cent, or more 
than four times the pre-war rate. Here again it must be pointed 
out that in 1913 a 300 per cent stock dividend raised the capital 
stock from $500,000 to $2,000,000, thereby cutting down the ap- 
parent per cent of earning*. 

On its original investment the Stjandard Oil Company of New 
York earned profits which averaged for the years 1912-1914, 79.8 per 
cent, while the actual net profits averaged approximately |12,000,- 
000. During the three years 1916-1918 the average net profits had 
risen to |31,000,000, a return of more than 200 per cent on the origi- 
nal investment. Here again, however, the published rate of profits 
appears much lower than it was, for in 1913 the original investment 
of 115,000,000 was raised to |75,000,000 by a 400 per cent stock 
dividend. 

To cite a company the profits of which were not quite so high, 
the Texas Company shows average profits for the years 1912-1914 
of 15,000,000 per year, equivalent to 18 per cent on the capital stock. 
During the war years this average had risen to $18,000,000 per year, 
the equivalent of 33^/2 P^r cent of the capital stock, which means 
that it earned its full value during the three war years. 

These few illustrations will serve to give an idea of the profits 
of the oil industry, and particularly of the immensely increased 
profits which were realized auring the war years. Reference has 
been made to the tendency to conceal the magnitude of profits by 
increasing the capitalization through stock dividends. In this con- 
nection it may be noted that a cursory glance at the ^'Summary of 
Oil Issues," published each week by Pfortzheimer & Company, re- 
veals the fact that approximately a quarter of a billion dollars of 
the stocks considered there represent stock dividends. In other 
words, stockholders are reaping huge profits from stocks which rep- 
resent no real investment on their part. 

The following table summarizes the material found in the financial 
manuals. It may be considered as giving a fair index of the war 
profits taken by 22 Petroleum concerns. The figures are based on 



74.^ 

iiicoiiie statements from which all taxes have been deducted,' and 
the percentage figures of income on real investment exclude stock 
dividends when known. 

Per cent on real 

Year Average net income investment 

1912 $30,541,068 13.0 

1913 99,756,195 2S.3 

1914 50,787,915 13.3 

1915 78,214,461 21.4 

1916 184,575,210 44.9 

1917 ,.,.., 181,045,043 40.8 

1013 . -. . 165,290,617 34.5 



i .t 



PROFITEERING IN THE IRON AND STEEL INDUSTRY. 

The ordinary consumer rarely buys directly the products of the 
iron and steel industry-. Therefore, to the majority of the con- 
sumers, the increased cost of a ton of steel billets, rails, shapes, or 
wire rods seems rather remote from the everv dav cost of living. 
Yet steel is so much the basis of our whole civilization that there 
is probably no other article which influences more generally the 
prices of all articles which people buy. In other words an advance in 
the price of steel products increases the price of transportation, of 
building and of machinery, both factory and farm, to mention but 
a few^ general classes. And, as everything which the public uses 
must be produced in buildings «or through the use of machinery or 
metal tools, or both, and must in addition be transported to the 
user, the increase in the price of a ton of steel becomes a very vital 
part of the high cost of living. It is, then, of very great interest 
to the public that the price of steel products has increased beyond 
anything w^hich can be justified by increased cost of production, and 
that this increase in price has been the basis for enormous profits 
in the industry. 

In the iron and steel industry the use of improved machinery has 
effected great saving in labor costs. As a result the profits of the 
manufacturers increased immensely even before the w^ar, while their 
war profits were more than double their average yearly profits for 
the pre-war period. As part of the financial excesses w^hich have 
characterized the industry these increased eaniings have teen large- 
ly used to pay dividends on capitalization hased on earning power 
rather than on actual investments. 

The United States Steel Corporation is an outstanding example 
of such capitalization. At its organization in 1901 it was over- 
capitalized to the extent of over |720, 000.000. During the period 
1901-1918 the corporation actually paid out in dividends on these 
fictitious securities the enormous sum of |G93,535,595. 

In other w^ords the right of the w^age earners to share in the gain 
which resulted from their increased output was sacrificed in order 
that the overcapitalized steel companies might create a value in 
their ficticious securities. 

High Prices Not Justified By Increased Labor Cost. 

The tremendous increase in the price of steel during recent years 
cannot be explained by advances in wages, for these have been offset 
to a large extent by the saving in labor costs due to the introduction 



76 

of improved machinery. Labor costs per unit of output actually de- 
creased an average of 25 per cent between 1901 and 1910. In other 
words the annual output per worker vastly increased. 

It is highly probable that this downward tendency continued from 
1910 to the beginning of the European war and was then lower than 
ever before in the history of the industry. In any case it is safe 
to assume that there was no increase. The following table, based 
upon this assumption, will serve to show the contrast between the 
increase in labor costs during the years 1913-1918 and the corre- 
sponding increase in wholesale prices of the product. It will also 
serve to show how insignificant is the labor cost as an element in 
the price \ of the product. In the preparation of this table it is 
assumed that the labor cost per ton in 1918 was double that in 1913. 
This is certainly an outside estimate. It is based upon the fact 
shown in the annual reports of the company, that between the pre- 
war period 1912-1914 and the year 1918 the total wages and salary 
per ton of output nearly doubled. The table shows the labor cost 
and prices of three standard steel products: 

Steel billets Steel rails Wire rods 

Labor cost of processes 1910-13 1918 1910-13 1918 1910-13 1918 

Iron ore $ 0.35 $ 0.70 $ 0.35 $ 0.70 $ 0.35 $ 0.70 

Coke 0.34 0.68 0.34 0.68 0.34 0.68 

Pig iron (Bessemer) 0.48 0.96 0.48 0.96 0.48 0.96 

Ingot (Bessemer) 0.52 1.04 0.52 1.04 0.52 1.04 

Product (Final) 0.40 0.80 1.14 2.28 1.41 2.82 

Total $ 2.09 $ 4.18 $ 2.83 $ 5.66 $ 3.10 $ 6.20 

15% added for waste 31 .62 .43 .86 .47 .94 

Total labor cost $ 2.40 $ 4.80 $ 3.26 $ 6.52 $ 3.57 $ 7.14 

Wholesale price 25.60 47.29 28.00 54.00 28.40 57.00 

Thus, assuming that the labor costs in 1918 were twice as great 
as those in 1910, it is evident that the total labor costs would amount 
to only a very small fraction of the increase in prices during the 
war. In the case of steel billets the increase in price was |21.69, 
more than four times the total labor costs and more than nine times 
the increase in labor costs. With rails the increase in price was 
|26, approximately four times the total labor cost and eight times 
the increase in labor cost. In the case of wire rods the proportion 
is the same, the increase in the price being |28.60. In general, then, 
a 100 per cent increase in labor costs during the war would have 
been but approximately 12l^ per cent of the actual increase in the 
price of the product. And it must be remembered that the 100 per 
cent increase assigned to labor costs rests upon a figure in the reports 



77 

of the steel corporation which includes all salaries. It is a well- 
known fact that the salaries of oflScials were enormously increased 
in order to cut down the returns for excess profits tax. 

Data presented in the annual reports of the U. S. Steel Corpora- 
tion bear out conclusively this contention that increased wages for 
iron and steel w^orkers have not contributed materially to the advance 
in the price of iron ore, pig iron, billets, rails or any of the other 
products of the industry. These reports show that the ratio of total 
wages and salaries to the value of the business done actually de- 
creased during the war. In the years 1912-14 the ratio was 26% 
per cent. In 1917 it had declined to slightly over 20^2 per cent, 
while after the wage increases granted in 1918 it was still over 
one-half a per cent less than in pre-war years. And attention 
should again be called to the policy of increasing largely the salaries 
of officials in order to avoid heavy excess profits levies. 

The following table shows in summary form some of the material 
which is available in the annual reports of the corporation. It is 
drawn to show the relationship between the volume of business, 
wages and profits : 

(1) (2) (3) (4) (5) 

Volume Total salaries Ratio Net Profits 

of and of Profits. per 

Business. wages. (2) to (1). ton. 
Pre-war average 

(1912-1914) .$700,271,582 $186,312,562 26.51 $52,984,601 $469 

1917 1,683,962,552 347,370,400 20.63 224,219,564 15.01 

1918 1,744,312,163 452,663,524 25.95 137,532,377 9.93 

Increase to 1917. 983,690,970 161,057,838 171,234,963 10.32 

Increase to 1918. 1,044,040,581 266,350,962 84,547,776 5.24 

Column three shows the actual decrease in the proportion of the 
cost of the finished product absorbed by wages and salaries, despite 
the enormous increase in the salaries of officials mentioned above. 
After the war-time increases in wages had been paid, the labor cost 
per ton of finished steel was only 41 per cent higher in 1917 than it 
was in the three years before the war, as compared with an increase 
in net profits per ton of finished product of 220 per cent. The in- 
crease in gross sales and earnings was equivalent to |63.97 per ton 
of output, or approximately four times the increase in total wages 
and salaries per ton. 

For every dollar paid in salaries and wages the net profits of the 
corporation available for dividends increased from 28 cents for the 
pre-war period to 65 cents in 1917 and 30 cents in 1918. At the 
close of 1918 the corporation accounts showed that for every addi- 
tional dollar paid to labor approximately 14 per cent more was 



78 

available for dividends than had been the average for the three years 
before the war. The net profits of the corporation per ton of finished 
product was 220 per cent greater in 1917 and 111.7 per cent greater 
in 1918, than it had been on an average for the three years prior to 
the war. Its average net profits, expressed in terms of dollars, were 
323 per cent more in 1917 than the yearly average net profits of the 
pre-war period. 

In brief, the facts presented by the corporation reports as well as 
those found in the investigations of the U. S. Commissioner of Cor- 
porations shows conclusively that the high prices of steel, which are 
att'ecting all prices, are due not to increased labor costs but to enor- 
mous profits on inflated capital. 

Profiteering As Shown in Published Reports of Corporations. 

This fact, that prices in the steel industry increased beyond any- 
thing warranted by the increased cost of labor, naturally resulted in 
a tremendous increase in the reported profits of the various steel 
corporations. The financial manuals, such as Moody's and Poor's, 
publish the annual reports of 19 steel companies. Eighteen of these 
were in existence prior to the war. The other, the Midvale Steel 
and Ordnance, was incorporated in 1915. It is, therefore, left out 
of the averages and totals. 

During the pre-war years 1912-1914 these 18 steel companies had 
an average net income of |74,G50,000. For the war years 1916-1918 
the income of these same corporations averaged approximately 
1337,000,000, or almost exactly four and one-half times the pre- 
war average. In other words, in the three years of war, these com- 
panies made a total of more than a billion dollars, of which some 
1750,000,000 represented excess profits over pre-war conditions. The 
per cent of return on capital stock also more than quadrupled, ris- 
ing from an average of approximately 6 per cent to approximately 
26 per cent. These excess war-time profits of at least |750,000,000 
represent a burden of about |30 upon every American family. 

Some analysis has already been made of the increased profits 
which the IT. S. Steel Corporation took as a result of the needs of 
war-time. Its average profits for the years 1916-1918 were |211,- 
094,557, representing 24 per cent on its heavily watered capital 
stock. This was more than four times its pre-war average of |53,- 
000,000. And as a matter of fact its earnings were over a quarter 
of a billion dollars in 1916, the figure being |271,537,730, a return of 
over 31 per cent on its enormous capital stock, an income which 
would mean its replacement in slightly over three years. 



r9 

In relation to capital stock, tbe profits earned by the Bethlehem 
Steel Corporation were even higher than those of the U. S. Steel 
Corporation. In contrast with pre-war profits of approximately 
14,250,000, the average annual profits during the war years lOlG- 
1918 were approximately |29,000,000. Thus, the war-time earnings 
were over six times as large as those of the earlier years. In 1916 
this corporation took profits equivalent to 146 per cent of its capital 
stock, so that it is no surprise to find it appearing in 1917 with a 
much higher capitalization. Its earning power was being capitalized. 
For the three years 1916-1918, despite the increased capitalization, it 
earned approximately 49 per cent. The high prices which the peo- 
ple of the world have been paying for the essentials of life have en- 
abled this company to make a profit in three years equal to three 
times the entire par value of its stock in 1916. 

The Cambria Steel Company also did some heavy grabbing while 
the opportunity lasted. Its pre-war profits of $3,800,000 per year 
became war profits of over |19,000,000, an increase from 8V2 P^r 
cent to 43 per cent on its capital stock. During two years, 1916 and 
1917, Cambria Steel made over |25,000,000 a year— over |50,000,000 
as the profits of two years on |45,000,000 worth of stock. 

Crucible Steel took advantage of the war to quadruple its profits. 
From an average of approximately |3, 115,000 they rose to over 
113,000,000, from 6.3 per cent to 26.2 per cent. For three years this 
corporation earned annually more than a quarter of the entire value 
of its capital stock. 

So we might continue, showing how Eepublic Steel took profits 
during the war years seven times those accepted prior to the war, 
or how Superior Steel with 250 per cent profits in 1916 was led into 
reincorporating with capital stock increased to 14 times the original 
figure. But enough specific cases have been cited to show the type 
of Americanism which characterized the steel industry. 

That these increased profits were not entirely due to increased 
production can be shown in the cases of three corporations for 
which production figures are available. Thus, the United States 
Steel Corporation increased in its net income per ton from an average 
of |4.69 prior to the war to an average of $14.31 during the years 
1916-1918. Lackawanna Steel shows an even larger increase, some- 
what influenced by a deficit of the pre-war years. While Colorado 
Fuel and Iron Company was able to raise its earnings per ton from 
!?2.02 to ^5.84. 

The following table shows in summary form the earnings of the 
jyroup of companies referred to above: 



80 

Net income Percentage earned 

Tear. for dividends. on capital stock. 

1912. $74,414,400 6.1 

1913 114,599,509 9.4 

1914 34,424,445 2.8 

1915 117,071,129 9.6 

1916 451,289,969 33.9 

1917 406,794,946 29.4 

1918... 245,156,478 17.7 

It should be remarked that the figures given for the years 1916- 
1918 include approximately $30,000,000 a year income of Midvale 
Steel which was not in existence in the former years. 

The figures are impressive enough to stand without comment. 
They represent another section of the gigantic conspiracy to profi- 
teer out of the war. As shown in an earlier section the grave injus- 
tice of attributing the high prices which prevail to labor is apparent 
throughout the whole analysis. The country is at the mercy of a 
profiteering system. As prices rise it is found that they are rising 
at a rate which is four times the increase received by labor for the 
product under consideration. It is found that the labor cost is be- 
coming a less significant feature of the price, and, on the other hand, 
it is found that corporation profits are swallowing an ever larger 
amount of the price until they rise to the point at which a few years 
served to reproduce the entire original value of the investment. 
This means something more than high prices now; it means that in 
the future the country will have to pay a "just" return on an enor- 
mously greater investment than is necessary to carry on the actual 
industrial activity required by the nation. 



81 

PROFITEERING IN COPPER. 

Copper is a cominodity so remote from the purchasing of the aver- 
age individual that the price of a pound of copper means little to 
him in terms of his ordinary expenses. Thus it is not immediately 
significant to him as a factor in the high cost of living. But when 
it is considered that the country consumes annually 1,750,000,000 
pounds of copper, and that its cost enters indirectly into what the 
consumer pays for light, transportation, and a host of other com- 
modities, the fact that over one-half the price paid for copper goes 
as a return to capital as compared with less than one-fourth to 
labor, will be seen to have great significance. 

How THE Price op Copper is Divided. 

From the analysis of copper production costs prepared by the 
Federal Trade Commission it appears that in 1918 the average 
"bookkeeping cost" of producing a pound of copper was 16.167 cents. 
This pound of copper sold for 24.511 ceats. The division of the 
selling price may be shown as follows: 

Cost per pound Per cent of total 

Labor $0.05307 21.65 

Materials and supplies 03764 15.85 

Overhead 02145 8.67 

Depreciation 00945 3.84 

Depletion 00720 2.93 

Tolls 04998 20.39 

Credits to be subtracted 01712 

Net margin of profit .08344 34.04 

Price 24511 

This table shows certain extraordinary facts which will bear 
scrutiny. By far the greater part of the price paid by the consumer 
goes as tribute to one or another form of capital investment. In 
other words 54.43 per cent of the price goes either in royalties or 
profits to those who own stocks and bonds or lands. This is two 
and one-half times the 21.65 per cent of the price which labor re- 
ceives. It is approximately one-fifth again as large as the entire 
cost of producing the copper, including all production costs, mar- 
keting charges, cost of transportation, and charges for depletion and 
depreciation which would entirely replace the capital invested in 
less than 20 years. 

As a matter of fact depletion and depreciation charges are, in a 
certain sense, a return to capital, which makes the entire capital 
charge carried by each pound of copper consumed by the American 



82^ 

people equal to 61.20 per cent of the price paid. This means that 
the actual cost of producing the copper is less than two-fifths of 
the price paid for the finished product. This capital charge is ac- 
tually nearly three times the share of the price Which goes to pay 
the necessary labor. 

In approaching the question as to what this means in terms of 
profits it will be interesting to discover what this enormous return 
means in terms of the capital invested in the industry. There is of 
course no way of discovering what the actual investment is upon 
which tolls or royalties amounting to one-fifth of the price as paid, 
although we can estimate that royalties amounted in 1918 to nearly 
one hundred million dollars in round numbers. In fact, it is highly 
probably that much of the land was originally staked claim land 
so that any value at present assigned to it is merely the capitalized 
value of the royalty received. 

But we do know the investment in the industry itself. For 1918 
it amounted to |672,168,916 or |0.298 per pound produced. This 
means that the margin of |0.0834 per pound, which remained as a 
fund for the payment of dividends, represents a net profit of 28 per 
cent on invested capital as the average for the entire industry. This 
is in addition to charges for depreciation and depletion which rep- 
resent approximately 5^^ per cent on invested capital. 

Eeturns To Labor Could Have Been Doubled. 

The above analysis proves clearly that the return to labor could 
have been doubled in 1918 and a fair profit paid to capital without 
raising the price of copper. For if the return to labor had been dou- 
bled, 32.78 per cent, or nearly one-third, of the selling price of cop- 
per would still have gone to capital in the form of -net profits and 
royalties. If the amount paid to royalties had remained unchanged 
the average profit per pound would still have been 3.037 cents, 
being a return of slightly more than 10 per cent upon the capital 
invested in the industry. If, as would have been likely, the increased 
labor cost had been partly taken up by a reduction of the exorbitant 
royalties the return on invested capital would still have been at least 
15 per cent. 

The enormous return to capital, above described, means nothing 
less than extreme profiteering in the industry, even when we take 
at its face value the figures for investment given by the companies. 
Were we to examine these to detect how much represents actual 
investment, the return would be found to be far higher. But it is 
enough for the purpose of this brief study to show that over one- 



-83 

half the purchase price of copper goes directly to capital, and th.at 
the high prices which prevail can, therefore, hardly be attributed 1o 
increased labor costs or to increased production costs in general. 

Profits As Shown in the Purlished Reports of Copper 

Companies. 

As might be expected this large proportion of the price which goes 
as a return to property is reflected in the large net earnings reported 
by the various copper companies in their annual reports. For the 
war years 1916-1918 the net income earned by 14 companies which 
publish their reports in Moody's and Poor's Manuals was approxi- 
mately three times as. large as that earned by these same companies 
in the pre-war years 1912-1914. 

These 14 companies produce approximately two-thirds of the total 
amount of refined copper smelted from domestic ores in the United 
States. In the group are concerns of all sizes from the Ahmeek 
^Mining Company with one and a quarter million dollars capital 
stock to the Ana^^'ouda Consolidated Copper Company with |116,- 
502,500 worth of capital stock in 1918. Altogether the 14 concerns 
represent over a quarter of a billion dollars capital stock. 

The average net income for the group for the period 1912-1914 was 
•146,557,451. By 1915 this had swelled to |74,511,169. Finally for 
the years 1916-1918 the average net profits had risen to |137,046,514. 
This means that profits had been steadily mounting from a return 
of 19.7 per cent upon capital stock to a return averaging for the 
latter period 54 per cent. In other words the average net earnings 
of these corporations for the years 1916-1918 were equal to over one- 
half the entire capital stock. During the four years 1915-1918 these 
corporations earned a total of |485,650,710 on a capital stock of ap 
proximately |250,000,000. This is an index of the most stupendous 
profiteering. Pre-war profits were very high. Those of the war 
years were nearly three times as high. And it must be recognized 
that the face value of the capitalization given is probably very con- 
siderably above the actual investment; not to mention the fact 
that much of the capital investment of the larger corporations prob- 
ably represents reserves of ore which are not being used, but upon 
which high profits will be realized in the future. The most that such 
dormant capital has a right to expect is simple interest, not profits. 

This fact, that the capital upon which the per cent of income is 
reckoned is probably above the figure for real investment, is em- 
phasized by an examination of the returns from companies witli 
large and with small capital. Such an examination shows us thaf 



84 



companies with large capitalization may earn more per pound of 
copper produced and at the same time earn a smaller per cent upon 
capital than T^ompanies with small capital. Thus the Anaconda 
Company with a capitalization of over 100 millions earned an 
average net income for the years 1916-1918 of 12 cents on each pound 
of copper making thereby 30 per cent on invested capital, whereas 
the Chino Copper Company with less than 4^^ million dollars 
capitalization, while earning nearly three-quarters of a cent less 
per pound on its production, actually earned a net income during 
the years mentioned averaging 198 per cent. 

In connection with this study of profiteering it may prove in- 
teresting to glance over the figures showing the average net income 
per pound contrasted with the percentage earned on capital stock 
in relation to capitalization. They are: 

Percentage 

earned on capital Average net income 

Capital stock stock for period per pound for period 

Name of company 1918 1912-14 1916-18 1912-14 1916-18 

Miami Copper Co $3,735,560 41.4 160.5 4.7 11.5 

Utah Copper Co 16,244,900 53.6 181.9 8.0 15.5 

Copper Range Co 9,857,725 35.7 44.7 4.0 13.8 

Ahmeek Mining Co. l,250^000a 57.0 187.7 5.4 9.2 

AUonez Mining Co 2,500,000 5.9 33.7 2.8 9.7 

Inspiration Co 23,639,340 42.4 56.3 ... 33.3 

Isle Royale Cop. Co 3,750,000 7.3 27.0 4.4 7.3 

Osceola Cons. Co 2,403,750 27.0 61.0 4.4 8.5 

Phelps-Dodge Corp 45,000,000 17.3 36.4 4.0 5.9 

Calumet and Ariz. Co. . . 6,425,190 46.9 113.5 5.4 11.6 

Anaconda Co..... 116,562,500 10.4 30.3 4.4 12.1 

Ray Consolidated 15,771,790 16.1 55.1 4.9 10.5 

Mohawk Mining Co 1,800,000 16.2 77.6 4.2 14.3 

Chino Copper Co 4,349,900 36.0 198.8 6.2 11.4 

Total $253,290,655 19.7 54.0 5.0 11.0 

a Capital increase by stock dividend deducted before computations in this 
table were made. 

This table reflects profiteering from still another angle. It shows 
that during war years the companies were averaging more than 
twice as much per pound as they were able to do in pre-war years. 
And it also brings striking confirmation of the high margin per 
pound of copper shown in the previous study of cost in relation to 
prices. The fact that during three years these corporations averaged 
11 cents per pound on an article which sold at a price between 20 
and 30 cents per pound is sufficient indication of profiteering. 

The highest profits in the industry were made in 1916 when the 
net income reached the enormous figure of |193,825,345 or a return 
of over 75 per cent on capital stock, and of 15 cents per pound on 
the product. 



85 

PROFITEERING IN METAL PRODUCTS MANUFACTURING. 

Closely akin to the industries which extract and produce the basic 
metals are a group of industries — such as nickel and brass manu- 
facturing — which, in general, handle the secondary processes through 
which the raw metals are turned into machines and equipment of 
various sorts. That these industries made largely increased profits 
as a result of the war is shown by the published reports of 11 con- 
cerns which appear in the financial manuals, including such well- 
known companies as the International Nickel Company, United Shoe 
Machinery Corporation and the American Shipbuilding Company. 

Many of these concerns showed such high profits in the pre-war 
years that it is doubly surprising to find that the average of the 
war years, 1916-1918, is nearly three times the average of profits for 
the pre-war years, 1912-1914. In the case of these 11 concerns the 
average profits rose from |18,205,471 for the years 1912-1914, 
equivalent to 11.8 per cent of the invested capital, to |51,527,942 or 
31.1 per cent on the capital stock in 1916-1918. In other words, 
during the three war years these companies earned practically the 
entire value of their capital stock. 

In certain companies, such as the International Nickel and the 
United Alloy Steel Corporation, the pre-war earnings were at a high 
rate on capital stock so that it is not surprising to find their in- 
creases proportionally less. According to the Federal Trade Com- 
mission the International Nickel Company produces practically all 
of the nickel used in the country. It has a natural monopoly based 
on ownership of the important mines. It is not surprising, then, 
to find it making an average of over |5,000,000 a year or nearly 20 
per cent on its capital stock prior to the war. In 1916 this had 
risen to over f 13,000,000 or 44.4 per cent on capital stock, but the 
general average for the war years was just under $10,000,000 per 
year or 32.3 per cent on invested capital. 

The profits of the United Alloy Steel Corporation were only about 
one-third higher during the war years than in the pre-war period. 
But possibly sympathy for this company is limited by the fact that 
its average earnings for the years 1912-1914 were practically equal 
to the entire value of its capital stock. In other words, the average 
yearly rate of net profit upon capital stock was 96.7 per cent. For 
the war years these exorbitant earnings were increased to 130.4 per 
cent despite a big increase in the capital stock. 

The manufacturers of bras.«: goods seem to have prospered exceed- 
ingly as a result of the war. The Scovill Manufacturing Company 



increased its profits from an average of |523,158 during the pre-war 
years to an average of over .^8,000,000 for the years 1916-1918. This 
meant an increase in the rate on capital stock from 10.5 per cent 
to 164.9 per cent. In the year 1916 it took a profit of over |13,000,- 
000 on 15,000,000 worth of capital stock, equivalent to 268 per cent 
on investment. The American Brass Company with three times as 
much capital stock increased its profits from an average of |1,880,- 
897, or 12.5 per cent, prior to the w^ar to an average of over |7,000,- 
000, or nearly 50 per cent, for the war years. In 1916 it took 
profits equivalent to 73.3 per cent on |15,000,000 capital stock. 

The following table shows in summary form the extent to which 
these 11 corporations profited by the war,; 

Percentage 
earned on capital 
Average net income for period stock for period 
Name of company 1912-14 1916-18 1912-14 1916-18 

International Nickel Co $ 5,137,014 $ 9,870,196 18.9 32.3 

United Alloy Steel Corp 1,449,806 3,367,473 96.7 130.4 

Niles-Bement-Pond Co 684,178 3,801,942 6.7 37.8 

(Machinery and Tools) 

Ingersoll-Rand Co. (Machinery) 1,453,181 5,367,524 14.0 45.8 

United Shoe Machine Corp 5,665,643 6,685.632 14.8 15.4 

U. S. Cast Iron Pipe & Foundry Co. 344,179 1.253,273 1.4 5.2 

Cramp Ship & Engine Co 454,087 1,591,681 7.4 26.1 

American Shipbuilding Co 488,830 3.451,204 3.2 22.3 

Keystone Steel & Wire Co 124,498 528,252 24.9 32.1 

Scovill Mfg. Co. (Brass) 523,158 8.246,416 10.5 164.9 

American Brass Co 1,880,897 7,364,349 12.5 49.1 

Total $18,205,471 $51,527,942 11.8 31.1 

It appears that even these high earnings are not a true picture of 
the actual profits made by these metal concerns during the war. In 
the course of its investigation the Federal Trade Commission had 
occasion to raise the 72.5 per cent profit as reported by the New 
Jersey Zinc Company to 95.9 per cent, the rdal net profit of that con- 
cern for the year 1916. This simply means that the concerns 
resorted to many accounting devices in order to conceal their exor- 
bitant earnings. One device already mentioned was the padding of 
the salary roll, that is, by charging enormous salaries and bonuses 
of executives to expenses. The following salaries were found by the 
Federal Trade Commission as paid to the chief officials of the Amer- 
ican Metal Company: 

C. M. Loeb, president. $364,325.73 

B. Hochschild, chairman board of directors 179,326.36 

Otto Sussman, vice-president 221.596.04 

J. Loeb, vice-president 147,930.69 

Sol. Roos, manager St. Louis office 148,530.69 

M. Schott, manager Denver office. 136,553.12 



ST' 

Here is one million dollars tucked away as an expense of the busi- 
ness, not a profit. Such illustrations merely serve to show that all 
the war profiteering which can be shown is undoubtedly far short 
of the real profiteering which has existed and which could be shown 
only after a most detailed investigation of all the companies of the 
country by expert accountants. 

In general it may be said that very obviously these secondary 
industries vied with the great primary producers in the profits 
which they took during the war, and that, in any attempt to account 
for the very high prices which prevail we must realize that these high 
profits pyramid upon each other as the goods approach delivery to 
the consumer. 



88 



PROFITEERING IN THE PRODUCTION OF RAILROAD 

EQUIPMENT. 

One of the secondary industries most closely associated with the 
steel industry is the manufacture of railroad equipment. The high 
prices which have prevailed in this industry when pyramided on 
those which have characterized the production of steel lie at the 
root of one of the nation's knottiest financial problems. The cost of 
maintenance and operation of the railways has been constantly 
brought to the attention of the public. It is undoubtedly going to 
be made the basis for higher freight rates, and consequently for high- 
er prices generally. Hence the exorbitant profits taken by the com- 
panies which manufacture railway equipment should be considered, 
together with those in the steel industry, as highly significant factors 
in creating the present economic problem of the country as a whole. 

The profits of the seven railroad-equipment concerns shown in 
the recognized financial manuals of Moody, Poor, etc., averaged for 
the pre-war years, 1912-1914, |15,745,728. The war profits of these 
concerns were nearly two and one-half times as large, averaging for 
the years, 1916-1918, |38,676,951. This meant an increase in the 
rate of return on capital stock from 7.3 per cent to 17.7 per cent. 
Generally speaking, the concerns which made relatively low profits 
during the pre-wars years show the greatest proportional increase 
in profits. Thus, the New York Air Brake Co. increased its profits 
from an average of |622,913, or 6.2 per cent on capital stock in pre- 
war years, to an average of $4,053,000 or over 40 per cent for the 
years 1916-1918. In 1916 this company made over |8,200,000, or ap- 
proximately 82 per cent, on invested capital. Such enormous profits 
lie at the root of many difficulties in equipping the railroads. The 
Westinghouse Air Brake Co. also earned more than half the value 
of its capital stock in 1916, but the increase does not appear propor- 
tionally so great because its pre-war profits were over 20 per cent. 

The profits of two great locomotive companies were also important 
elements in the cost of equipping the railroads at a time when the 
public was hearing much about the run-down condition of the trans- 
portation system due to the inability of the roads to earn enough 
with given rates to meet expenses. Between pre-war and war years 
the American Locomotive Co. increased its profits from an average of 



89 

$3,376,329 to an average of |7,960,749 ; while during the same period 
the Baldwin Locomotive Works increased its profits from $2,688,000 
to $5,559,000. 

The makers of cars also came in for their share of war-time profits. 
As an example we find the American Car and Foundry Co. increasing 
its annual profits from an average of |2,740,248 per year to an 
average of |8,136,211, approximately three times as large. 



9M 

PROFITEERING IN THE MANUFACTURE OF BUILDING 

MATERIAL. 

The manufacturers of various products which enter into building 
operations seem to have taken full advantage of the war to increase 
their profits. The profits of ten representative concerns producing 
bricks, lead products, window glass, hardware, etc., as shown by their 
annual reports, increased from an average of |10, 154,722 for the 
years 1912-1914 to an average of |27,729,68o for the war years 1910- 
1918. In other words, this group of manufacturers nearly tripled 
their profits. Such profiteering rendered far more difficult a 
national problem, which became critical during the war, the problem 
of housing, of building new administrative and manufacturing build- 
ings and cantonments. In terms of per cent on capital stock, this 
increase appears as a rise from 5.7 per cent to 15.6. Moreover, it 
should be noted that one of the companies included — the American 
Linseed Oil Company — with a very large capitalization showed a 
very low rate of return, which brought the general average down 
considerably. 

The war-time profits of Harbison-Walker, makers of bricks, were 
four times the figure for the previous period. For the years 1912- 
1914 they averaged |1,290,901, or 4.7 per cent, on the capital stock, 
while for the years 1916-1918 they had risen to an average of |5,257,- 
126, or 19.1 per cent. In the year 1917 the profits of this concern 
were more than five times the pre-war average, showing a rate of 
return on capital stock of 24.4 per cent. 

The makers of window glass also made large increases in their 
profits. The American Window Glass Company increased its net 
profits from an average of |336,574 for the years 1912-1914 to an 
average of nearly |3,000,000 for the war years. Its former rate of 
2 per cent rose to a rate of 17.5 per cent on capital stock. In con- 
trast with a pre-war average of fl, 696,721 and 7.5 per cent the 
Pittsburgh Plate Glass Company took profits in the year 1917 of 
over 16,500,000, amounting to 30 per cent on its capital stock. Its 
war-time average profits were over five million dollars, or more than 
23 per cent on its capitalization. 

The hardware manufacturers all show that they took advantage 
of the war to build up large .profits. This is especially true of the 
Yale & Towne Manufacturing Company, which increased the rate 
of return on capital stock from 17.3 per cent to 41.8 per cent. In 
11)0 year 1916 this corporation earned over 57 per cent on its capital 
slock. 



91 

The American Radiator Company shows large earnings, but its 
increase in average profits amounts to less than 50 per cent of the 
pre-war figure, an exceptionally low figure, while the dealers in 
painter-s' supplies, linseed oil, white lead products, and the like show 
a relative low rate of return, with war-time profits slightly less than 
double the previous figure. 

In general, as a group these providers of building supplies cer- 
tainly took occasion to profiteer. To what extent these largely in- 
creased profits were due to increased production it is hard to say, 
although it is improbable that this had very much influence upon 
the situation. It is certain that not only the high cost of living, 
but the housing problem was accentuated by the profits taken by 
these manufacturers. 



92 

PEOFITEERING IN MISCELLANEOUS INDUSTRIES. 

The following brief analysis shows the increase in profits of 22: 
companies, which may be taken as representative of industries pro- 
ducing various items of general consumption, products the prices 
of which have considerable influence upon the cost of living. 

The high profits of Proctor & Gamble, as representative of the 
soap manufacturers, should certainly arrest the attention of the 
person burdened with a household account. For the pre-war years 
1912-1914 this concern, with a capitalization of |14,2oO,000, was 
already earning over $4,000,000, or slightly over 28 per cent, on its 
capital stock. The average earnings rose during the war years to 
17,664,118, or 53.7 per cent on capital stock, while for the year 1918 
the profits were |9,719,804, or 68.2 per cent on the investment. The 
profits of this corporation are replacing the entire capital stock in 
less than two years. 

The manufacturers of rubber goods, represented by the B. F. 
Goodrich Company and the United States Rubber Company, also 
show great increases in profit due to the war. During the pre-war 
years 1912-1914 the profits of the B. F, Goodrich Company averaged 
13,854,221, a return of 4.3 per cent on the capital stock. For the 
years 1916-1918 average profits reached |11,860,133, or 13.7 per cent 
on capital stock, while in 1918 the profits of this concern amounted 
to 115,627,609. For this company, moreover, the figures for 1919 
are at hand, showing a net profit of |17,304,813, more than four and 
one-half times the pre-war average. The United States Rubber 
Company increased its profits from an average of nearly $7,000,000 
for the pre-war years to an average of over $14,000,000 for the years 
1916-1918. In this instance also the figures available show that the 
profits are still rising, and indicate that the return for 1919 wiM 
approximate three times the large pre-war earnings of this company. 
In these facts we have certainly one explanation of the high price 
of rubber products. 

Two great electrical manufacturing concerns show increases in 
average net profits totaling over 20 million dollars per year. The 
Westinghouse Company has increased its profits from approximately 
3 million to approximately 16 million dollars, appearing as an in- 
crease in rate of return on capital stock from 7.5 per cent to 21.6 
per cent. That the increase in rate does not appear larger is due to 
the fact that the capital stock was expanded. The profits of the 
General Electric Company increased from an average of $12,308,148 
to an average of $20,866,113, or from 15.8 per cent to 25.4 per cent 



93 

on capital stock. As the prices of electrical equipment and appli- 
ances are matters which enter into everyday expenditure, these high 
profits must certainly be considered an element in the general rise 
in the cost of living. 

Other large corporations show the same general tendency. The 
Diamond Match Company nearly doubled its pre-war profits. The 
International Paper Company shows earnings for the years 1916- 
1918 over five times those for the pre-war period, despite the deduc- 
tion of 12,500,000 in 1917 and $1,100,000 in 1918 as reserve for Fed- 
eral taxes. The American Glue Company and the Simmons Furni- 
ture Company both show greatly increased profits. The profits of 
the Continental Can Company for the war years were more than 
double those for the pre-war period. And the profits of the Ameri- 
can Company more than doubled, in spite of the fact that this cor- 
poration charged offi $7,000,000 as reserve against Federal taxes in 
1918 and $6,000,000 in 1917. In the case of the first-mentioned 
figure this was more than the eutire net income given for the period. 
It is unreasonable to believe that such deductions were made in 
entire good faith. 

Taking the whole group of 22 companies together, their total net 
profits for the years 1916-1918 exceeded those for the pre-w^ar yeai's 
1912-1914 by approximately $255,000,000. Such an enormous in- 
crease in profits could not but have a very great effect upon the cost 
of living. 



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LIBRARY OF CONGRESS 



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